FTX co-founder Sam Bankman-Fried lays the groundwork for a defense that argues he relied on the advice of a prominent Silicon Valley law firm to take many of the actions for which he now faces fraud charges.
Bankman-Fried’s defense attorneys on Tuesday asked the judge overseeing his criminal case to compel prosecutors to turn over documents provided to the government by former FTX law firm Fenwick & West. If the government doesn’t agree, Bankman-Fried wants permission to recall the Mountain View, California-based company.
That advice, the defense said, included the use of encrypted messaging apps, the provision of millions of dollars in loans to FTX executives and the cryptocurrency exchange’s compliance with US banking regulations. These are all key elements of the charges against Bankman-Fried, who has been accused of masterminding and concealing a years-long fraud in which he used billions of dollars in FTX clients’ money for risky investments, personal expenses and political donations.
His lawyers said the legal advice Fenwick & West provided to FTX and Bankman-Fried between 2017 and 2022 is “material for preparing the defence.”
Bankman-Fried pleaded not guilty to the 13-count indictment and is scheduled to stand trial in October.
The so-called defense by counsel can be used to refute suggestions that a criminal defendant intended to break the law, said Stephen Gellers, a New York University law professor.
In other words, the defendant’s argument is, “The attorneys told me it was legal, and I thought it was legal,” Gellers said. That would contradict the government’s claim that the defendant acted illegally on purpose—a necessary component of many criminal charges. , including those directed at Bankman-Fried.
Such a defense would put more scrutiny on the relationship between FTX and Fenwick & West. The firm began representing Alameda Research, a subsidiary of the stock exchange hedge fund and, according to prosecutors, the conduit for most of the Bankman-Fried scams, in 2017 and became FTX’s lead outside advisor after it was incorporated in 2019.
Fenwick & West did not immediately respond to a request for comment.
Former employees interviewed by federal prosecutors during the investigation also cite Fenwick & West legal memos that they claim guided their decisions, according to two people familiar with the case. Law enforcement also sent subpoenas to the law firm, and investors in a class action accused it of aiding Bankman-Fried in fraud.
Dan Friedberg, former FTX Chief Regulatory Officer, joined the exchange in 2020 after previously representing it as an outside attorney with Fenwick & West. When the cryptocurrency exchange began to crash in early November, Friedberg contacted federal prosecutors to offer his help, according to a person familiar with the exchange. FTX’s former general counsel, Kan Sun, has also been stolen from the company.
Some of the materials Bankman-Fried’s lawyers are seeking relate to the accusation that it lied to Silvergate Bank to open an account in 2020 to receive customer deposits for the international FTX exchange. The bank said at the time that it could not open such an account if FTX was not licensed as a financial services company in the United States.
Fenwick & West provided legal advice to FTX on this filing. The US exchange registered as a financial services company in 2020, but the law firm advised Friedberg in February 2020 that FTX’s international division did not need to register in the US because it does not accept US clients, according to a legal brief filed in court.
To get around Silvergate’s terms, prosecutors allege, Bankman Fried set up a new company, North Dimension, and told the bank it wanted to open a trading account linked to Alameda. Alameda employees, at Bankman-Fried’s request, submitted a request to the bank with this false information. The charges of conspiracy to commit bank fraud were added to the indictment issued by Bankman-Fried earlier this year.
Bankman-Fried said in a filing Tuesday that Fenwick & West provided “real-time advice” on opening a North Dimension account.