Second Circuit to Hear SBF Retrial Motion Following 25-Year Fraud Conviction

Executive Summary

The U.S. Second Circuit Court of Appeals will convene next week to consider a motion for a retrial for Sam Bankman-Fried, the founder of FTX. Bankman-Fried was previously convicted on seven counts of conspiracy and fraud, resulting in a 25-year prison sentence. The upcoming hearing will focus on the conduct of the initial trial rather than re-litigating the original charges.

The Event in Detail

Sam Bankman-Fried faces a hearing at the U.S. Second Circuit Court of Appeals on November 4, where arguments will be presented concerning his motion for a retrial. His defense team has submitted a 102-page appeal document challenging his conviction on seven felony charges and the 25-year prison sentence. The legal team has formally requested a re-examination, proposing that a retrial be presided over by different judges to ensure judicial fairness and independence.

Bankman-Fried was found guilty on multiple charges, including two counts of wire fraud, two counts of conspiracy to commit wire fraud, one count of conspiracy to commit securities fraud, one count of conspiracy to commit commodities fraud, and one count of conspiracy to commit money laundering. He was implicated in the misappropriation of billions of dollars from customer funds deposited with FTX, defrauding FTX investors of over $1.7 billion, and misleading lenders to Alameda Research of more than $1.3 billion. The court ordered an $11 billion forfeiture as part of his sentencing.

Ahead of the appeal, Bankman-Fried's family released a 64-page document characterizing FTX's collapse as a "liquidity crisis." Separately, Bankman-Fried's team issued a 14-page document asserting that FTX possessed $136 billion in holdings and was solvent when it filed for bankruptcy. They attributed the bankruptcy proceedings to FTX's external legal counsel, claiming it derailed a recovery plan. Bankman-Fried maintained that the situation was manageable, with $20 billion in customer deposits from 7 million users intact, and that a resolution was nearing completion prior to external legal intervention.

During the upcoming hearing, the U.S. Attorney for the Southern District of New York and Bankman-Fried's defense team, led by Alexandra Shapiro, will each have 10 minutes to present their arguments.

Market Implications

The financial repercussions of FTX's collapse continue to manifest. While roughly 98% of creditors have nominally received 120% repayment, with others projected to receive between 119% and 143%, the actual recovery rate for crypto assets has been significantly lower. Due to substantial increases in the market value of Bitcoin and Solana since November 2022, the real recovery rate for crypto assets is estimated between 9% and 46%, with Bitcoin recoveries at approximately 22% and Solana at 12%. This discrepancy highlights the impact of market appreciation on fiat-denominated repayment structures following crypto insolvencies.

Broader Context

The Second Circuit Court of Appeals' proceedings are closely observed by the digital asset industry. A recent precedent, United States v. Chastain, saw the Second Circuit vacate wire fraud and money laundering convictions in a crypto insider trading case. The court in that instance cited prejudicial errors in jury instructions concerning property value and societal mores, necessitating a new trial. This ruling underscores the complexities involved in applying traditional legal frameworks to novel digital asset cases.

The outcome of Bankman-Fried's appeal could establish significant legal precedents. It has the potential to influence the regulatory treatment of digital assets, reshape the interpretation of the Howey test, and impact the future trajectory of crypto markets within the United States. The appellate court's engagement with this case, while it is still pending, may yield sweeping implications for regulatory oversight and the judicial handling of cryptocurrency-related offenses.