Bernie Madoff’s Former Prosecutor Dissects Sam Bankman-Fried’s Defense

Despite facing seven criminal charges stemming from FTX’s implosion and potential testimony from three of his former executives who have already pleaded guilty, Sam Bankman-Fried is set to defend himself at trial.

The expectation is that prosecutors will lean heavily on corroborated facts and testimony from Alameda Research CEO Caroline Ellison, FTX co-founder Gary Wang, and FTX Director of Engineering Nishad Singh. As the government works to put its case together, Sam has been doing the same.

Last week, Coinage published an exclusive look into Sam’s prepared defense and what he claims led to the demise of his former crypto kingdom. Now, to further explore what to expect at trial, we’re turning SBF’s defense over to attorney Marc Litt, the lead prosecutor for the government in its case against Bernie Madoff. (Coinage NFT holders can watch our full interview above.)

From the very beginning, Litt admitted this is a unique case. It’s not quite as straightforward as prosecuting just another Ponzi scheme. FTX, afterall, was an actual business that raised billions of dollars on its way to becoming the second-largest crypto exchange in the world.

“The government is alleging, among other things, that promises were made to investors and promises were broken and the promises were material,” Litt said, pointing to the charges stemming from conspiracy and alleged fraud and money laundering. “It's not a Ponzi scheme, but it's fraud. It just happens to be in a wrapper of cryptocurrency, which is novel.”

But the unique nature of the case doesn’t stop with FTX’s collapse. After his exchange filed for bankruptcy last November, SBF was quick to present his side of the story on the media circuit. Those prior interviews and accounts of events never got quite as detailed as what Sam told Coinage, but as Litt points out, defense attorneys usually despise when their clients speak before trial because of the risk of limiting options in the courtroom.

“The saying among prosecutors is, ‘We do our talking in court.’ That's how you stay out of trouble,” Litt said. “Once you enter the courtroom, that's when you talk.”

Sam Bankman-Fried has not been following that playbook. If anything, his strategy appears to be the polar opposite. At a hearing last month, prosecutors revealed that Sam held more than 1,000 calls with members of the media while under house arrest, including more than 100 calls with a reporter at the New York Times. Those conversations have landed SBF in trouble before the trial has even started.

After SBF was revealed to have leaked diary entries from Caroline Ellison to the New York Times, Judge Lewis Kaplan is set to rule this week on the government’s request to detain him in order to prevent what prosecutors are calling “witness tampering.”

“First off, I don't know if his leaking of the diaries was part of a defense strategy or a personal strategy,” Litt says. “Second, sort of punching down at somebody is not necessarily a good look when you're in front of a jury, particularly if that person happens to be, from what I've seen, a rather diminutive looking nice young woman who, you know, used to be in love with [Sam] and something happened along the way.”

EDITOR'S NOTE: As a community-owned Web3 media outlet, Coinage will be breaking down everything we received together and curating still unanswered questions in our token-gated channels. (The chances of delivering an interview have diminished a bit, given that prosecutors are pushing to revoke bail and detain Sam ahead of trial. Nonetheless, as his defense team fights to maintain Sam’s ability to respond to press requests, we at Coinage want to be prepared. You can submit your questions here by minting a Coinage Caucus membership pass, and you’ll also be able to co-own our outlet via our DAO/Cooperative.)

Throughout our conversation, Litt flipped back-and-forth, seeing each move through the eyes of a prosecutor and a white collar defense attorney at the same time. As easy as it may be to get caught up in focusing on all of the things that have generated headlines, or the multi-billion dollar hole that’s now impacted millions of customers after FTX’s collapse, Litt was quick to set the legal framing.

“He's not charged with the collapse of FTX. He's charged with a whole bunch of things that led up to the collapse of FTX,” he said, noting the charges in the indictment cover all the way back to years before November 2022. “The defense will try to create, I'll call it, sideshows – and maybe make it about the bankruptcy, make it about the collapse – but that's not really what's fundamentally charged. And the judge's job is to keep the jury focused on what's relevant to what's charged and limit the amount of smoke and sideshows.” 

As Coinage has reported, Sam’s recollection of facts differs drastically from Caroline Ellison’s sworn testimony. Ellison pleaded guilty on December 18, 2022, to seven counts related to fraud and money laundering. In her statement to the court, she admitted to borrowing money from FTX in order to repay Alameda’s loans, working with SBF to retain Alameda’s lenders by giving them, “materially misleading financial statements,” and lending Alameda’s money directly to FTX’s executives, including SBF himself.

SBF’s defense, instead, claims certain liabilities stemming from Alameda were either hidden from him or incorrectly displayed. That, in turn, obfuscated the real threats Alameda's liabilities posed to FTX’s trading platform and customers. Importantly, Sam also claims that neither Caroline Ellison, nor Gary Wang, nor Nishad Singh, nor other senior FTX developers who would have had the access to view the true account balances told him early enough to address the issue before crypto prices unwound in November.

“There's no flaw in claiming that you didn't know something,” Litt says, predicting how that defense might play out in court. “The problem is, to assert that, one, he's going to have to testify because nobody else is going to be able to assert that for him. So that's going to subject him to about three days of cross-examination. Second, there's going to be more than one witness, I expect, who's going to say, ‘Actually, he did know and here's how he knew.’ And third, there may or may not be documents to support that.”

Historically, Litt points out that testifying in your own defense usually doesn’t go well, but there are always exceptions. Theranos founder Elizabeth Holmes took the stand for seven days in her trial last year as she faced charges stemming from fraud. She was convicted on one count of conspiracy to commit wire fraud and three counts of wire fraud against specific investors after a jury took just as long to deliberate. Out of 11 total charges, Holmes was acquitted on all the ones related to defrauding patients and one count of conspiracy. This time around, the business actually worked — up until it didn’t.

“Even the brightest, glibbest, most charming criminal defendant tends to overestimate their capacity to wow the jury and outthink the prosecution and be able to answer every question in a satisfactory way that doesn't create an additional problem for them,” Litt said.

Interestingly, as much as Bernie Madoff’s former prosecutor thinks this trial shouldn’t focus on what transpired in FTX’s collapse, the government did include specific mention of it in the original indictment. Litt questioned that strategy, and noted it could complicate what 12 jurors wind up hearing at trial.

“I would have been at least sensitive to the fact that it could open those doors to arguments and evidence about who's really to blame for the ultimate collapse,” Litt said, noting that it does give the defense an opening to spend time focusing on other details in their argument “That wouldn't be there if you didn't reference the collapse in the indictment.”

In Litt’s estimation, the avenues for a successful defense are narrow, but not impossibly so. 

“Not every loss of an investor's funds is criminal, not every failure of a business is criminal,” he says. “[But] if you have a pattern of activity that includes lying to auditors, changing the name of the entity in which accounts are titled to avoid regulatory scrutiny or due diligence by banks. If you intermingle and co-mingle funds and use money from one pocket to pay off the debts of another pocket. When you lie to investors about what the relationships of entities are to solicit funds or investments, you know, you start adding all those things up along the way and it becomes a more criminal sounding case.”

One fact becomes clear, however. In order to get a jury to believe his story, SBF is going to have to win in a three-on-one battle against his former FTX comrades.

“Is it a potential defense? Absolutely. I can't possibly tell you whether it will prevail or not, because I don't know … how powerful that presentation will be and what they can do to those witnesses on cross-examination," Litt says. "I don't know if the defendant is going to testify, and maybe come off as more credible than all three of them put together. Could that happen? Absolutely. The odds? Probably not.”

Coinage NFT holders can watch our exclusive interview with Marc Litt above. 

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Disclosure: Alameda Ventures is one investor among many in Trustless Media, the production company behind Coinage.