In opening statements yesterday, prosecutors said Sam Bankman-Fried's crypto empire was a "house of cards" that was "built on a lie," while the defense claimed the FTX founder acted in good faith.
The state of crypto is presented by Tron connecting the world to the power of Cryptocurrency. In opening statements yesterday, prosecutors said Sam Bakeman Fried's Crypto Empire was a House of Cards that was built on a lie. The defense countered that the FDX founder acted in good faith while also assigning some of the blame to Alameda Ceo Caroline Ellison claiming that she failed to install safeguards. Joining us. Now to discuss is ZFZ Law co-founder Michael Zwei back. Welcome to the show, Michael. Thank you very much. All right, you are very experienced in white collar criminal defense. What do you, what did you make of the opening arguments that we heard yesterday? Well, both sides did what they wanted to do. The prosecutions stayed away from sort of the more uh um difficult topics and tedious topics of the world of crypto. And they focused on lies, lies, and more lies. And the defense attorneys did what they had to do, which is they, they're trying to paint Mr Bank and freed as just sort of a CEO who was making it up as he was going along and it's, it's not really his fault. There were other issues, the market Caroline Ellison that really were responsible for the fall of FTX. You talk about the tedious aspects of crypto here. If just one juror feels confused about the different aspects of the crypto industry, what could happen? Well, that could lead to the possibility of a hung jury if in fact, they believe that it was really market forces as opposed to Mr Pink, but Fried's actions that resulted in the failure of FTX. But I think the prosecution has done a very good job at trying to make this uh more about the Guard variety fraud aspects of this, the lies, the attempt to gain political influence and that's where they're gonna focus their attention and, and not on those more difficult aspects. Uh Does the i the, the idea that it's making it up as they're going along is that going to really help Samba Man freed? In other words, eee even if they do show, even if they're somehow able to portray that idea, um If it's, he was making up as he was going along, including trying to cover his tracks because he was so upset about what was going on. He was just trying to do the right thing here. Um Is that going to help his defense at all? Well, I don't think so. I mean, they're trying to put it on the fact that he was acting in good faith that he didn't have the intent to engage in the crime. And you're going to hear that he was relying upon some of the world's best law firms in order to provide the compliance elements that were necessary. But ultimately, I think you're going to be able to see and the prosecution is going to paint the picture that, that this was far beyond good faith. And this was about his own personal ego and the use of investor funds. So it's funny because a lot of people are talking about, you know, does the jury understand crypto or not? But it seems like it's not really an understanding of crypto, it's more of an understanding of just like this very specific business of FX, which to be frank, most people in the crypto industry don't really understand like FDX was extremely confusing, right? I mean, like, what exactly were they doing? You know, and I feel like this is where problems will arise because it's like when they try to explain, ok, there relationship between like FTX and Alameda and like high frequency trading and futures, I mean, this is actually legitimately quite complicated and was be like, how do you, how do you deal with that? Because I feel like it's, this isn't about Blockchain technology. This is about like admittedly very confusing business. This is about a bad business or, or a uh sort of a business that lack transparency. And so what the prosecution is gonna try to do is ultimately they're, they're going to focus on the fact that he used $10 million for political influence and buying multimillion dollar properties. The fact that that amount of money was used from investors directly is gonna be, uh, the, the picture that's going to be painted and it's not going to be focused on those other very tedious aspects. But, you know, we sort of talked about this a little bit before on the show and this is where I'm having trouble getting my head around it because, you know, as we know, crypto exchanges are not regulated at a federal level in the United States, this wasn't even a United States exchange, right? So like, isn't there some world in which the defense could say something like, well, nobody told us we could use money for this? I mean, like, you know, I mean, because for example, if the US has some federal regulations saying like, you know, assets need to be segregated and customer funds can be used for trading from a sister company, but there's not actually a rule that specifically says that, right? So, I mean, is that something that they are expected to argue? Well, they're gonna try to argue that they're gonna try to argue that this is not like a bank or any other financial institution and that the rules were different for them. And in fact, in many cases, the rules just didn't exist but the focus is gonna be on, what did they say to the investors in order to get them to part with their money and that's going to be a much easier road for them rather than focus on these other issues, the compliance issues that, you know, that have been raised early in the case. So who's going to be helped by the kind of jury that was selected? Is it going to be the defense or is it gonna be the prosecution? A jury that might not necessarily know a lot about crypto? Uh, the, you know, we, we see now that they, they, the kind of witnesses they're going to call up et cetera, who's going to be helped here. Well, ultimately, I think, you know, arguments could be made that it could help either side. Uh, the fact that the jury is not sophisticated in crypto is going to tend to cause some confusion, um as these things are trying to be explained. But I think that the prosecution as you saw in their opening is going to focus on the very simple aspects of the fraud and that I think is going to be easily understandable to this, this jury that's been seated is the Sam Bagman Fried. Are the jurors being sequestered and if not, how is the court ensuring that they're not watching shows like this and their opinion isn't being swayed. Well, as you saw from jury selection, everyone had heard about this case. So I think in a, in a circumstance like, like that where everyone has heard about this case. You know, you, you have to do a very careful jury selection, make sure that you're vetting everyone to ensure that there are no sort of preconceived notions about the case. And it, it comes down to the or the questions asked by the judge of, of each and every juror, that's the most important part of that. So just to follow up on that question, there's this kind of weird elephant in the room, which is this Michael Lewis book, right? Um You know, which is like this very crypto community is very angry because they see it as overly sympathetic to SPF and, you know, you could say like, oh, it doesn't matter, it's just a best selling author, you know, spinning his usual tail except for the fact that my Lewis himself referred to his book as a letter to the jury on 60 minutes. And so where does this book fit in? I mean, like, I, I would even do with that. It's like, you know, I'm just curious, like, is there, are there, I mean, I obviously there's no way to enforce whether somebody reads a book or not, but I, I don't know where, where does this book fit into this whole conversation? Well, I think it ultimately played very little. I mean, the, the judge is gonna, has asked questions about what they read and what, you know, sort of what experience they've had with the case. And so the that type of thing would have come out in jury selection. I, I understand that the book is very popular, but I think you're gonna find that it plays very little in this case. It's gonna be about the witnesses who were sort of inside the boardroom who are gonna explain what Mr Banken free intent was. I'm curious to hear what you think of the defense strategy. Of course, we now know that there's gonna be some blame put on Caroline Ellison, who's the former CEO of Alameda research and also alleged ex-girlfriend of Sam Bakeman Fried. There is a uh uh we thinking the defense defense is going to blame some of the attorneys that advised Sam Bakeman Fried later on in the trial. What do you make of this strategy? Well, it's really the only strategy they have. I mean, they, you know, it, it's got to be, I'm just the poor math nerd from MIT and I was trying to build this company uh with, with all the best intent. And so it's, it, it's really the other people who I relied upon who, who failed me, uh Caroline Ellison failed to follow my instructions. And while I do the best I possibly could to follow the advice of my lawyers. In some cases, I may have failed being a bad CEO does not mean that I have the intent to commit fraud. And that's really the only thing that, that the defense has to rest its, uh, its hat on, in this case, I think it's gonna fail and, and, and ultimately, uh, you know, AAA, as you sit and watch this, how, how, how in, in using past, uh, history, what, what do you suspect will happen? Uh, I, I, at the end of the trial, should he be found guilty? I mean, is, is this going to be kind of a, I, is he still going to get like a, a tap on the wrists here, so to speak? You know, maybe a dozen year in prisons or, or, or do you think that this will just be a, a really, you know, he'll, he'll be collecting his social security checks behind bars. I think you're gonna see a Bernie Madoff type sentence. I mean, this is gonna be a substantial sentence if Mr Banken free does get out. I think he's gonna be, uh, collecting social security by the time he does get out. Wow. All right. And Bakeman Free during his time at MIT actually walked the jury through a brief set of explanation about crypto, um, to talk to us about if, if crypto. No, I know we already spoke about this a little bit. But like, do you think that one juror is going to feel hung up on this and we're gonna get a hung jury by the end of this? Oh, that's, you know, that's entirely possible in any criminal trial in any, any federal criminal trial and especially in fraud cases, I mean, they can be compli complicated. You do get jurors who get hung up on the details and the TDM and look, the prosecution had a good first day, but it doesn't mean that the 2nd and 3rd are going to be uh similar and, you know, you're expecting that these witnesses, the, the insider witnesses are gonna testify as they've uh indicated to, to the court in their, in their guilty pleas. But sometimes things happen. And so you, you couple the detail and the tedious nature of the testimony on crypto with the fact that some witnesses may fail and that could persuade one juror and, you know, I've experienced situations where you have the one hold out and they stick true and, and, and hung juries do result. So do you think that we, we, we might even see some jury nullification here like, hey, get back at all at uh Wall Street and you know, they all he did was rip off a bunch of very rich people, so to speak. Uh uh you know, and, and we got to stick it to the man. Do you, do you think that that at some point the defense will, will, will change its, its uh its tactic midstream if they see that, that things are not going their way? Well, I think that they, they'll try, but I think the prosecutors are aware of that, right. In the, in the first day, what did they do? As, as one of the initial witnesses, they called someone who lost $100,000 in the investment and, you know, a modest investor, someone who is sort of a, a day to day type of investor in crypto. And while the defense tried to paint them as well, you understood the risk. The fact of the matter is, is that this was sort of an ordinary everyday citizen who lost a substantial amount of money. And I think you're gonna see that in the prosecution's case that they're going to try to humanize this, make it about not the celebrity aspects of the people who lost, but the, the fact that the losers in this are everyday investors. All right, Michael, thanks for joining the show this morning. It was a pleasure having you back. That was ZFC Law co-founder, Michael. So.