The government’s core allegations against SBF center around his alleged exploitation of funds, which were then funneled for varied purposes such as supporting FTX.com and Alameda Research's operations, making speculative investments, illegal campaign contributions, and personal enrichment.
A recent Motion in Limine filed by the government in advance of SBF’s upcoming trial, confirms that three of the defendant's co-conspirators: Gary Wang, Nishad Singh, and Caroline Ellison, are expected to testify against him. Wang was a co-founder and the Chief Technology Officer of FTX.com, Singh was the Head of Engineering at FTX, and Ellison, who was initially an employee, eventually became the CEO of Alameda. See Caroline Ellison’s list of ‘Things Sam Is Freaking Out About’ could be used in trial
According to the government, the testimony of these three witnesses is anticipated to shed light on several alleged fraudulent activities. Specifically, how th directed Wang and Singh to integrate features in FTX's platform that facilitated the misappropriation of customer assets, how Alameda was given undue preferential treatment on the exchange leading to massive losses for FTX’s customers and investors, and how the defendant consistently used customer assets from FTX for personal and private gains, putting customers at high, undisclosed risks. Moreover, these witnesses will recount events from November 2022, describing how FTX faced a liquidity crisis and how the defendant tried to keep up appearances, despite being aware of the gravity of the situation.
Apart from these three, the prosecution also intends to present testimony from various former employees of both companies, several of the defendant's victims (including customers, lenders, and investors), and an expert witness who will break down the financial aspects of the fraud. The government will also showcase documentary evidence, like financial records, online documents, spreadsheets, and private communications to substantiate their claims against the defendant.
Ledgers, Notes, and Other Contemporaneous Documentation Are Not Hearsay
The Government plans to present documents, including ledgers and notes, made in real-time by Wang, Singh, and Ellison. These were made during their association with the defendant and as a result of their suspected conspiracies. As such, they aren't considered hearsay.
The government maintains that preliminary evidence suggests SBF was in a conspiracy with Wang, Singh, and Ellison. All of them admitted to conspiracies involving the defendant. They argue the court can allow such statements conditionally, pending further evidence during the trial. The court might also consider the confessions of the co-conspirators to determine the existence of a conspiracy involving the defendant.According to the government, the ledgers, created by SBF and his co-conspirators, track questionable money flows between Alameda and FTX. Such ledgers have historically been admitted in court as co-conspirator statements.
Ellison's notes highlight the conspiracy's activities, like financial details of Alameda and its obligations to FTX. One note was titled “Things Sam is Freaking Out About”, which highlighted the defendant’s main business concerns. Such notes aren't hearsay as they were made to keep track of the conspiracy. The government argues these documents also align with Rule 801(d)(2)(D) since they are statements made by the defendant’s agents while working for him. Wang, Singh, and Ellison were employees and agents of the defendant and were particularly involved in the business activities directed by the defendant.
Statements by Ryan Salame
The government is seeking to admit statements by Ryan Salame about his involvement in the SBF’s alleged illegal campaign finance scheme. Ryan Salame had messaged a family member in 2021, discussing the defendant's intentions to secretly donate to both Democratic and Republican political candidates in the U.S. using Salame as a middleman. The primary motive behind these donations was to support pro-crypto candidates in both parties.
The government maintains that although Salame will not testify, his messages are considered as statements against his own penal interest, which means he was implicating himself in a crime by admitting to being a straw donor for the defendant. While statements that implicate others are generally not considered self-inculpatory, the context of Salame’s admission shows he was not trying to shift blame but was providing details of their shared campaign finance scheme.
They argue these messages also reflect an insider's perspective on the criminal enterprise, making them further reliable. The fact that Salame was revealing the intricacies of the operation to a trusted family member enhances the trustworthiness of the statements. Government also argues there is also external financial evidence corroborating Salame's claims, as money trails from corporate accounts flow through Salame's own, then towards political donations.
FTX commercials as evidence
The government also wants to introduce FTX commercials as evidence. These commercials promoted the FTX exchange as a secure and reliable platform for crypto transactions. However, the government argues these commercials are not being presented as truthful statements, but rather as evidence that they falsely represented the safety of the FTX exchange. They argue the commercials are significant because they indicate that the defendant, who was in charge of FTX's marketing strategy, approved these misleading public messages. Consequently, potential customers could have been deceived into thinking FTX was a secure platform. Additionally, these commercials can be considered statements made by the defendant's agents, as they were created by individuals working for the defendant with the purpose of portraying FTX as a reliable cryptocurrency exchange.
False Statements to Bank-1
According to the government’s motion, it intends to offer evidence at SBF’s trial about alleged false segments made in connection with Bank-1. The government plans to present evidence showcasing how the defendant allegedly deceived Bank-1 to open an account for receiving FTX customer deposits. Initially, FTX.com was unable to open a bank account in the U.S. to receive deposits. As an alternative, in 2019 and 2020, FTX directed its customers to wire deposits to accounts controlled by Alameda.
By August 2020, to seemingly mask the fact that Alameda was holding FTX customer deposits, the government alleges that defendant directed the establishment of a U.S.-based entity named North Dimension. The primary purpose of this entity was to open a bank account to receive FTX deposits. Although North Dimension had no genuine business operations, the defendant was listed as its sole owner, CEO, and president. Aware that Bank-1 would not open an account for entities associated with FTX customer deposits, the government alleges defendant and Alameda employees falsely presented North Dimension as wanting an account for trading linked to Alameda's trading accounts. An account application and a due diligence questionnaire were submitted with misleading information, suggesting North Dimension's primary activities were trading and market-making, rather than processing FTX customer deposits. By April 2021, Bank-1 approved the account based on this misinformation.
The defendant's alleged actions in misleading Bank-1 and the subsequent use of the North Dimension account to manage FTX deposits form a central piece of evidence for the government. These actions are directly related to the charges against the defendant concerning fraud against FTX customers and misappropriation of funds. The funds misappropriated were kept in bank accounts like the one at Bank-1, under the names Alameda and North Dimension, illustrating the defendant's knowledge and control over these accounts.
Defendant's Alleged Illegal Campaign Finance Scheme:
While the government cannot charge the defendant with campaign finance violations due to extradition treaty constraints, they do intend to use evidence of his purported illicit campaign finance activities in his trial.
The defendant allegedly used funds, which were primarily sourced from FTX customers and funneled through Alameda, for political contributions. The manner in which he spent this money attests to its misappropriation. For instance, he is believed to have utilized straw donors, including Singh and Ryan Salame, to disguise the origins of these funds. This use of straw donors indicates the defendant's awareness that he wasn't using the funds legitimately.
The government maintains that this alleged conduct by the defendant is indicative of both wire fraud and money laundering. The illicit use of straw donors to channel political contributions demonstrates a conscious effort to hide the origin of funds, showcasing both the defendant's intent to deceive and a mechanism of laundering money.
The government argues the illicit political donations underline the defendant's motive: he sought capital, partly to support political contributions that would elevate his image and enhance his business's regulatory standing in the U.S. By circumventing campaign finance laws, the defendant displayed a strong intent to gain political influence, even if it meant using stolen customer funds.
The government argues that defendant's actions mirror the case of United States. v. Hsu, 669 F.3d 112, 118-19 (2d Cir. 2012) where funds from a Ponzi scheme were used for political contributions. In Hsu's case, these contributions served to enhance the defendant's reputation. Similarly, in this case, the defendant's use of stolen funds for political contributions seems to be an attempt to improve his image.
The government also argues that the transfer of significant sums from Alameda for political donations suggests the defendant's dominion over Alameda's decisions. This is further corroborated by the trust between the defendant and Singh, who was not only part of the defendant's trusted circle but also acted as a straw donor for the defendant's campaign finance machinations.
Evidence of the Defendant’s Foreign Bribery Scheme Is Admissible: Summary
SBF is charged with conspiracy to bribe a foreign government official under the Foreign Corrupt Practices Act in the S5 Indictment.Even though this charge has been separated from the main trial, its evidence remains admissible both directly and under Federal Rule of Evidence 404(b).
The government alleges defendant aimed to access capital for Alameda's business activities. To achieve this, when around $1 billion of Alameda's trading assets got frozen by the Chinese government in 2021, he allegedly resorted to bribing at least one Chinese official. After the bribe, the trading accounts were unfrozen.
As a secondary justification, the government argues that Rule 404(b) permits this bribery evidence because it highlights the defendant’s motivations, criminal intent, and knowledge regarding the main charges. Given the defendant's public statements and filings, the government anticipates he might argue ignorance regarding Alameda and FTX's illicit activities. However, the government maintains his alleged involvement in the bribery scheme, especially when he publicly distanced himself from Alameda, strengthens the evidence of his knowledge and intentions.
Evidence that the Defendant Created FTT and Manipulated its Value Is Admissible
The government plans to present evidence about SBF’s actions related to the cryptocurrency token FTT, including its issuance, ownership, price maintenance, and promotion. The defendant also had substantial holdings in another cryptocurrency token called Serum. The government alleges that defendant directed Alameda, his company, to purchase large amounts of these tokens, primarily to increase Alameda's ability to borrow by using the tokens as collateral. Notably, the defendant told Ellison to covertly engage in trading to inflate and sustain FTT's market price. This manipulation allowed Alameda to use FTT to obtain billions in loans.
The government also charges that defendant and his associates also took steps to hide their significant ownership of Serum tokens. Due to owning a large percentage of FTT and Serum, the defendant could misrepresent Alameda's assets. On paper, these tokens were valued significantly, but their actual liquidation value was much lower. They argue this evidence is crucial as it directly shows how the defendant allegedly enabled Alameda to borrow massive amounts from lenders, whom he later defrauded. The evidence showcases the tactics the defendant used to amplify Alameda's borrowing and trading potential.
According to the government, Alameda leveraged FTT to secure loans from third-party lenders and to borrow from FTX customer assets. The inflated value of the tokens and the difference between their paper and actual value is essential for understanding the fraudulent nature of the defendant's actions, leading to the downfall of FTX. They argue that defendant's orders to Ellison to manipulate FTT's price are direct evidence of the crimes charged. The inflated price of FTT gave a false representation of Alameda's financial health to its lenders. This evidence also highlights the clandestine criminal relationship between the defendant and Ellison.
Evidence that the Defendant Selectively Prioritized Payments to Certain Creditors Is Admissible
According to the government, SBF publicly claimed his main concern was the welfare of FTX's customers following the platform's collapse. However, evidence suggests that his actions prioritized specific creditors over the general customer base for personal benefit. They alleged as an example, when the defendant suspended FTX withdrawals, he exclusively allowed withdrawals for Bahamian customers to gain favor with the Bahamian government.
The government asserts though Alameda assets were used to address customer withdrawals, the defendant instructed Ellison to use the funds to pay back particular Alameda lenders instead of compensating FTX customers. Notably, the defendant directed Ellison to prioritize repayment to a U.S.-based lender to reduce potential scrutiny from U.S. regulators. Amid a surge in customer withdrawals, the defendant and his team allegedly attempted to draft a balance sheet for both FTX and FTX US. During this process, they identified a $45 million deficit in FTX US. The defendant then conveyed that he had covered this gap using Alameda assets.
The government argues that defendant's discriminative asset distribution and prioritizing certain creditors over others illustrate his criminal intentions and the deceptive nature of his claims during FTX's collapse. For instance, he allegedly proclaimed his sole objective was the well-being of FTX customers. The government argues that evidence that the defendant took steps to evade potential U.S. regulatory scrutiny is a clear indicator of his awareness of guilt, providing pertinent evidence about his intentions.
Evidence that the Defendant Instituted Autodeletion Policies for Business Communications Is Admissible
The government contents that in 2021, SBF instructed Alameda employees to use encrypted messaging platforms like Slack and Signal, with a setting that automatically deleted messages after a short time. The prosecution believes this policy was implemented by the defendant to eliminate potential incriminating evidence that could be used in future criminal investigations.
The government argues that such actions to suppress evidence are seen as relevant indicators of the defendant's awareness of guilt. The evidence also supports claims under Rule 404(b) highlighting the defendant’s knowledge, intent, and central role in the alleged schemes. This evidence is not considered excessively prejudicial and is admissible per Rule 403.