FTX co-founder Sam Bankman-Fried is preparing a defense strategy that asserts he relied on the guidance of a prominent Silicon Valley law firm in relation to the actions for which he is now facing fraud charges.
In Bankman-Fried’s criminal case, his defense lawyers have requested the judge to compel prosecutors to hand over documents provided to the government by former FTX law firm, Fenwick & West. Alternatively, Bankman-Fried seeks permission to subpoena the California-based firm from Mountain View.
According to the defense, the advice given by Fenwick & West encompassed the utilization of encrypted messaging apps, the provision of multimillion-dollar loans to FTX executives, and ensuring compliance with US banking regulations. These elements are significant in the charges against Bankman-Fried, who stands accused of orchestrating and concealing a multi-year fraud scheme. The allegations suggest that he utilized billions of dollars from FTX customer funds for risky investments, personal expenses, and political donations.
Bankman-Fried’s lawyers emphasized the importance of the legal advice provided by Fenwick & West between 2017 and 2022, stating that it is crucial for preparing an effective defense.
Bankman-Fried, who has pleaded not guilty to the 13-count indictment, is scheduled to face trial in October.
The defense’s strategy, known as an “advice-of-counsel” defense, aims to challenge the notion that the defendant had an intention to violate the law, as explained by New York University law Professor Stephen Gillers. Essentially, Bankman-Fried’s argument is that his lawyers advised him that his actions were legal, and he genuinely believed so. This defense counters the government’s claim that Bankman-Fried knowingly engaged in illegal activities, an essential element in many criminal charges brought against him.
This defense strategy also puts the relationship between FTX and Fenwick & West under further scrutiny. The law firm initially represented Alameda Research, FTX’s hedge fund affiliate and, according to prosecutors, the primary channel for Bankman-Fried’s fraudulent activities, starting in 2017. Subsequently, Fenwick & West became the primary external counsel for FTX after its establishment in 2019.
Fenwick & West has not yet provided a comment in response to requests for clarification.
Former employees involved in the investigation have reportedly mentioned Fenwick & West legal memos that allegedly influenced their decisions, as indicated by individuals familiar with the case. The law firm has also received subpoenas from law enforcement agencies and has been accused by investors in a class-action lawsuit of assisting Bankman-Fried in his fraudulent activities.
Dan Friedberg, FTX’s former chief regulatory officer, joined the exchange in 2020 after previously representing it as an external lawyer affiliated with Fenwick & West. When FTX encountered significant challenges in early November, Friedberg approached federal prosecutors to offer his assistance, according to a source familiar with the matter. FTX’s former general counsel, Can Sun, also transitioned from Fenwick & West to the exchange.
Some of the requested materials by Bankman-Fried’s lawyers pertain to the charge that he provided false information to Silvergate Bank in order to open an account in 2020 for receiving customer deposits for FTX’s international exchange. At the time, the bank stated that Bankman-Fried could not open such an account if FTX did not hold a license as a money services business in the US.
Fenwick & West provided legal advice to FTX regarding the registration requirements. While FTX’s US platform registered as a money services business in 2020, the law firm advised Friedberg in February 2020 that FTX’s international division did not need to register in the US since it did not accept customers from the United States. This information was disclosed in a legal memo filed.
