Judge warns FTX's Bankman-Fried: Your freedom can be revoked.
Former FTX CEO Sam Bankman-Fried’s freedom was on the line during a court hearing on Thursday as government attorneys and lawyers for the indicted crypto entrepreneur argued over further restricting his access to electronic communication.
During a hearing in Manhattan federal district court, following weeks of negotiation between the parties, U.S. District Court Judge Lewis Kaplan tabled a decision on the prosecution's request to cut off Bankman-Fried's internet access, and continued to express skepticism over the defendant's access to encrypted communication services.
It isn't clear when Judge Kaplan will rule on the request, or why he afforded the lawyers more time to work out the dispute, though he extended Bankman-Fried's bail conditions ordered on Wednesday. He asked Bankman-Fried's lawyers to consider hiring a technology guru who could provide the court with device monitoring expertise, and asked that the defendant be prepared to address his lingering concerns by February 24.
"Why am I being asked to turn him loose on this garden of devices," Judge Kaplan asked during the hearing, during which U.S. assistant attorney, Nicolas Roos, proposed cutting off Bankman-Fried's cell phone, tablet, and computer access, as well as his access to smart TVs and online video games.
In essence, the government argued that Bankman-Fried should be prohibited from accessing the internet in order to allay concerns that he may use self-deleting messaging apps and virtual private networks, or VPNs, to communicate with potential trial witnesses. Following his arrest, Bankman-Fried messaged the FTX US general counsel over Signal and email, as well as other current and former FTX employees. He later used a VPN on January 12, which his lawyers contend was to view Super Bowl LVII.
"We are dealing with somebody....who has done things that show there is probable cause he attempted to commit a felony while on pretrial release," Judge Kaplan said, citing potential witness tampering and potential attempted witness tampering based on Bankman-Freid's post-arrest contacts. The judge warned that the former crypto chief's bail, which offers him freedom to remain out of custody while he awaits trial, can be revoked.
Under his current bail conditions, Bankman-Fried is required to live at and remain mostly confined to his parents' Bay Area home—and refrain from contact with potential witnesses. The arrangement introduced added concerns in court with Judge Kaplan questioning whether Bankman-Fried had access to his parents' unmonitored devices.
“Within the span of a month, the defendant has used at least two methods of encryption in a manner that warrant modification to his bail conditions,” U.S. attorneys wrote in a letter to Judge Kaplan. “His behavior shows that the existing conditions leave too much room for circumvention of restrictions aimed at preventing inappropriate conduct, including contacting witnesses and accessing cryptocurrency assets.”
Bankman-Fried’s lawyer, Mark Cohen, called the prosecution's proposal "draconian," warning that it would jeopardize their client's ability to defend himself. Bankman-Fried is required to use a VPN to access a critical database housing all of FTX's archived financial data, including customer wallets and company transactions, Cohen said. He added that blocking the former FTX CEO from collaborative Google docs and Microsoft Word would further impede his defense.
Prosecutors suggested that Bankman-Fried be permitted to use only two specific electronic devices — a laptop and a cell phone — so long as both are monitored by a pen register.
The parties have made preliminary agreements to prohibit Bankman-Fried from using self-deleting messaging app features, such as those provided by Signal and WhatsApp (META), as well as iPhone iMessage, from manually deleting any messages on such messaging platforms, and from contacting certain individuals, with the exception of family members and close friends.
"My client understands what's at stake here," Cohen told the judge. "He's on trial for his life."
Bankman-Fried is facing multiple fraud and conspiracy charges as well as accusations of money laundering, and campaign finance violations, tied to his role as CEO of FTX, an international crypto trading and investment empire now embroiled in bankruptcy proceedings in the U.S. and the Bahamas.
Prosecutors say FTX and Bankman-Fried misused customer funds by secretly allowing the assets to be transferred to the company’a related hedge fund, Alameda Research. Investors in FTX and its related entities, they allege, were duped by the same scheme.
The judge has repeatedly referenced Bankman-Fried's technology acumen in remaining skeptical about the government's willingness to allow limited access to electronic devices.
“You don’t think this defendant is bright enough to encrypt something without a computer?” Judge Lewis Kaplan asked government attorneys in a hearing last week. After 400 plus years, he said, decoders finally decrypted letters written by the monarch Mary, Queen of Scots.
"I want this to be tight," Judge Kaplan said.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.