Prognosis-Bankman-Fried fraud charges sidestep debate over how U.S. law sees crypto

© Reuters. FILE PHOTO: Frail FTX Chief Executive Sam Bankman-Fried, who faces fraud charges over the give intention of the bankrupt cryptocurrency replace, departs from his court hearing at Ny federal court in Original York Metropolis, U.S. January 3, 2023. REUTERS/David De
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By Luc Cohen

NEW YORK (Reuters) - Sam Bankman-Fried may well well additionally secure it laborious to argue the fraud charges against him may well well additionally gentle be tossed due to uncertainty as to how U.S. law treats cryptocurrency, as other excessive-profile defendants in prison cases spellbinding digital resources get accomplished.

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That is because Ny federal prosecutors' charges against the founding father of now-bankrupt crypto replace FTX get largely sidestepped an ongoing debate as to whether or now now not cryptocurrencies may well well additionally gentle be regulated as securities or commodities, good experts told Reuters.

Bankman-Fried, 30, became indicted on two counts of wire fraud and 6 conspiracy counts remaining month in Ny federal court for allegedly stealing FTX customer deposits to pay debts from his hedge fund, Alameda Research, and lying to equity merchants about FTX's monetary situation. He has pleaded now now not responsible.

"It be a barely straightforward deception," said Shane Stansbury, a professor at Duke College College of Regulation and passe Ny federal prosecutor. "You in actuality don't must secure into the weeds of how we gape cryptocurrencies."

The search records from of whether or now now not cryptocurrencies are regarded as securities, love stocks or bonds, or commodities - a class that within the US encapsulates international currency shopping and selling to boot to raw materials such as indecent oil - stays largely unresolved.

Nevertheless the uncertainty is irrelevant to most of the costs leveled against Bankman-Fried, in step with experts. Whereas he faces one count of conspiracy to commit securities fraud, that designate alleges he misled FTX's equity merchants, and does now now not contact on the nature of the resources traded on the replace.

He additionally faces two wire fraud charges and two connected conspiracy counts for allegedly providing spurious records to Alameda lenders relating to the hedge fund's monetary well being and for the alleged theft of customer resources.

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"There is now not any must put that what the potentialities within the crash bought with fiat currency became a security or commodity or no topic," said Designate Kasten, counsel at Buchanan Ingersoll & Rooney in Philadelphia. "Customers assign aside money into the platform and the money became presupposed to be passe in a definite manner. And in step with the allegations within the indictment, it wasn't."

A spokesman for the U.S. Felony legit's situation of enterprise in Ny declined to comment.

Bankman-Fried's protection attorneys did now now not acknowledge to a question for comment. The onetime-billionaire has beforehand acknowledged shortcomings in FTX's risk management practices, nonetheless has said he does now now not factor in he is criminally liable.


Gary Gensler, the U.S. Securities and Trade Commission (SEC) chairman, has said bitcoin is a commodity nonetheless that other digital resources behave extra love securities - outlined broadly as contracts by which merchants earnings from others' efforts - because their designate derives from promotion.

The debate issues to cryptocurrency corporations because it'll additionally pick which company regulates the shopping and selling of digital resources. The U.S. Commodity Futures Trading Commission (CFTC) is viewed by many crypto gamers as most likely friendlier than the better-funded SEC.

San Francisco-primarily based entirely blockchain payments company Ripple is contesting a 2020 SEC lawsuit accusing it of conducting an unregistered securities providing by arguing its XRP token is now now not a security and thus now now not field to SEC oversight. The case is ongoing.

Damian Williams, the tip federal prosecutor in Ny who took situation of enterprise in 2021, has made enforcement of cryptocurrency-connected monetary crimes a centerpiece of his tenure.

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Closing year, within the first-ever insider shopping and selling cases spellbinding digital resources, his situation of enterprise brought wire fraud charges against Nathaniel Chastain, a passe worker of non-fungible token (NFT) marketplace OpenSea, and Ishan Wahi, a passe manager at cryptocurrency replace Coinbase (NASDAQ:COIN) Global Inc.

Each and each get pleaded now now not responsible and argued the costs may well well additionally gentle be pushed aside because insider shopping and selling charges must involve securities or commodities. In bringing wire fraud charges in every cases, prosecutors evaded taking a region on how cryptocurrencies or NFTs may well well additionally gentle be categorised.

A command in October denied Chastain's attorneys' motion to push aside the costs.

It is now now not going Bankman-Fried's attorneys will try a identical argument for the reason that wire fraud charges are extra easy, Kasten said.

He said the Massachusetts Institute of Technology (MIT) graduate's protection would likely focal level on the arguments that he had no intent to commit fraud, that other executives at FTX and Alameda bore the blame, and that he became now now not inquisitive relating to the day-to-day operations of the corporations.

Nevertheless prosecutors may well well additionally additionally level to wire fraud charges by setting up that a defendant willfully blinded himself to the penalties of his actions, said Victor Hou, a associate at Cleary Gottlieb and passe Ny federal prosecutor.

"Wire fraud is a highly wonderful and frequently passe weapon within the prosecutor's arsenal because it captures an exceptionally astronomical differ of illegal behavior," Hou said.

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