Courtroom extra: Bankman-Fried Crossed Without Jury On Lawyers Advice on Document Retention - more here

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by Matthew Russell Lee, Patreon Book Substack

SDNY COURTHOUSE, Oct 26 – For US v Sam Bankman-Fried, after more than a day of jury selection, late morning on October 4 the twelve and six alternate were selected. Inner City Press live tweeted the voir dire here and more below

On Thursday, October 19 there was Robert Boroujerdi of Third Point. Inner City Press live tweeted, thread

On October 26, with SBF expected to testify in front of the jury, Judge Kaplan sent them home at 2 pm in order to hold a hearing - with SBF on the stand - about the advice of lawyers on FTX's document retention policy and terms of service. Inner City Press live tweeted the cross, thread:

 [US v SBF without jury present] All of the prosecutors have left the courtroom, to confer about what AUSA Sassoon should ask SBF on mock direct. This was the purpose of the break...

Prosecutors are back, and SBF is back on the witness stand.  Still no Judge Kaplan. Deputy Andy: I've been asked to remind everyone to avoid conversations while the hearing is going on. Save that for afterward. Thanks.

OK [US v SBF without jury present] AUSA Sassoon: Mr. Bankman-Fried I want to ask you about Signal. Did you discuss your use with lawyers? SBF: Yes. In 2020. There were lawyers in the Signal chats - Dan Friedberg was on the chats. AUSA: And auto-deletion? SBF: Yes

 AUSA Sassoon: When did you discuss auto-deletion with them? SBF: I'm not sure if you're referring to... Shortly after I started using Signal. AUSA: When did you start auto-deleting? 2021? SBF: That sounds plausible.

SBF: At some point I remember changing my toggle to one week auto delete AUSA Sassoon: Did you seek approval? SBF: No. AUSA: When did the document retention policy go into effect? SBF: Mid 2021. Under Dan Friedberg AUSA Sassoon: Did the policy deal with auto-deletion on Signal? SBF: Not on Signal specifically.  AUSA Sassoon: When did it say you could destroy company records? SBF: There was permissibility--

Judge Kaplan: Meaning you could do whatever you wanted?

 SBF: Uh... AUSA Sassoon: Where is the document retention policy? SBF: We look for it-- Judge Kaplan: You stick to the blockchain. SBF: The policy specifically addressed email, not other platforms. AUSA: What lawyer did you discuss this with? SBF: Dan Friedberg

 AUSA Sasoon: How was retention period decided on? SBF: My time period was not meant to be the policy company wide for documents. AUSA: Did any lawyer tell you you could delete your messages with Caroline Ellison, Gary Wang and Nishad Singh? SBF: Not specifically

 SBF: I apologize, I wish I had that policy now. My memory... AUSA Sassoon: Do you consider Caroline Ellison's seven spread sheets a formal document? SBF's lawyer Cohen: Objection! Beyond the scope of this hearing! Judge Kaplan: Overruled

 AUSA Sassoon: So you believe that deleting the message with the seven different spreadsheets was permissible? SBF: Yes. For example, verbal discussions were not required to be reported. AUSA: You were the CEO of FTX? and she of Alameda? SBF: Yes

AUSA Sassoon: And you think deleting such messages was permissible? SBF: I don't have the policy in front of me right now. AUSA: What about discussions of shutting down Alameda? SBF: I wouldn't characterize it that way.

 AUSA: Did you have discussions about a $13 billion hole? SBF: I don't recall such conversations. AUSA: You think it should be preserved? SBF: It depends.  AUSA: Adam Yedidia quoted you that preserving Signals would be all downside SBF: I don't recall thatSBF: I was concerned that statements could be taken out of context, that it could be embarrassing. 

AUSA: Did you share that with lawyers? SBF: Not specifically in connection with the data retention policy.

AUSA: Did you tell lawyers it would be all downside? SBF: I don't recall that Judge Kaplan: Did you believe it would be all downside, these Signals? SBF: At my previous firm Jane Street we said anything might under on the front page

AUSA: Did you tell employees to have certain discussions only on Signal? SBF: Not specifically. AUSA: Did FTX get a subpoena, to not destroy documents? SBF: Yes.  AUSA: Did you ask lawyers which Signals you should preserve? SBF: Yes. Ryne Miller and Dan Friedberg

AUSA: Who decided which to retain? SBF: Ultimately Dan and Ryne. AUSA: Did you tell them you were discussing company business on Signal chats? SBF: Yes. AUSA: What did they tell you? SBF: Preserve only formal business decisions.

AUSA: They used that phrase? SBF: I don't recall them using that phrase. AUSA: Did anyone use the words informal business conversations and say that spreadsheets qualified? SBF: They were aware that would sometimes happen

 AUSA: What about Alameda? SBF: I believe they had a similar policy. It was mentioned sometimes. AUSA: When? SBF: Late 2021. After the CEO-ship went to Caroline Ellison and Sam Trabucco AUSA Sassoon: You don't actually have the document retention policy? SBF: No. 

AUSA Sassoon: Do you believe you ever violated it? SBF: I don't recall ever violating it. AUSA: North Dimension, why did you incorporate it? SBF: Dan Friedberg

 AUSA: What was the relationship between you and Dan Friedberg? SBF: It changed over time. Can you zoom in? AUSA: OK, North Dimension. SBF: I don't recall giving him direction. AUSA: Why was it called North Dimension? SBF: I don't recall

 AUSA: Why did FTX transition from a bank account with Alameda in its name to North Dimension- did you think banks wanted to avoid crypto hedge funds? SBF: Something like that AUSA: As CEO of Alameda you didn't know why it moved deposits to North Dimension? SBF: No

 AUSA: Did you discuss the bank account with Dan Friedberg? SBF: I'm not sure, I just don't recall.  AUSA: You weren't involved in deciding on North Dimension? SBF: Not in particular. I may have been in conversations.

 Judge Kaplan: So you don't remember specifically, is that it? SBF: I want to make sure I'm answering the right question Judge Kaplan: The permissibility of using North Dimension to take funds SBF: Only if you count Alameda Judge Kaplan: Listen and answer directly

 AUSA: Let's look at GX 267, the banking application document you signed, Dec 9, 2020 - you were CEO of Alemeda? SBF: Yes. AUSA: That's a wet signature? SBF: Yes. AUSA: Did you review it? SBF: Briefly. A lawyer presented it to me, but no discussion.

 AUSA: Let's go to page 1, description of business: trading firm. Was North Dimension that? SBF: It was part of Alameda. AUSA: Did North Dimension acts as a trading firm? SBF: Not that I'm aware of. AUSA: Did you review witness notes of Dan Friedberg? SBF: Not all

 AUSA: Are there any other lawyers you talked to about North Dimension being able to accept FTS customers' funds.

SBF: I'm not entirely sure. AUSA: Were there conversation with auditors about the funds going to Alameda and North Dimension? SBF: Not that I recall... I should say, I am not a lawyer, I am just trying to answer based on my recollection... At the time FTX, certain customers thought accounts would be sent to Alameda. FTX would keep a debt, repayable ... I did not create this Payment Agent Agreement [GX 245]

 AUSA: As far as you know was this agreement every disclosed to the public? SBF: I'm not aware of that. AUSA Sasoon: Your Honor, I'm sorry I'm not going to finish by 4:30. I can do past. Judge Kaplan: Go on. AUSA Sassoon: The terms of service, Section 16

 AUSA: What is this provision about? SBF: Assets posted as collateral for their positions.  AUSA: Did you have discussion with Can Sun about Alameda's exemption from automatic liquidation? SBF: No.. I, I, not by name. I was not aware of these topics by name

 AUSA: What do you mean by that? SBF: I, I... I don't believe I was aware at that time - sorry - I was aware of lines of credit - AUSA: You said speed bumps - what did you mean? SBF: I apologize. This will be a somewhat substantial digression

 AUSA: I am asking about Alameda's exemption from auto liquidation, and said speed bumps. what did you mean? SBF: Some combination of delays and alerts, I apologize, I wish I could give you a more specific answer. AUSA: I am asking about a typical customer

 SBF: If you mean, Not a market maker. AUSA: Were you aware that Alameda could have an overall negative balance? SBF: Adding up all assets, is that correct? AUSA: Yes. Now please answer. SBF: I'm not sure it was in the codebase.

 SBF: I may be misunderstanding what the Allow Negative feature was... Do you mean Negative asset value? AUSA: Let's pull up the exhibit. SBF's lawyer: I object to this. This is a deposition now. AUSA: May I explain? It has to do with what he told counsel. 

Judge Kaplan: I'm going beyond my tether here. Part of the problem is that the witness has an interesting way of responding to questions. Cohen: Part of the problem is this type of hearing.

 Judge Kaplan: If you want to put this defense on it's through this hearing or not at all. Cohen: I understand. Judge Kaplan: The question never mentioned net asset value. But you keep using it in your answers.  SBF: I apologize AUSA: I'm going to move on

 AUSA: When did you believe Alameda was permitted to borrow funds from FTX? SBF: I believed it was permissible to borrow from assets held as collateral for margin positions... AUSA: Did that include withdrawing assets off the exchange? SBF: With risk analysis

 AUSA: Which attorneys did you discuss this with? SBF: I talked with Ramnik [Arora] about Three Arrows Capital -- AUSA: Ramnik Arora is not an attorney. So, no attorneys? The answer is no. AUSA: Let's talk about loans. Where they all documented? SBF: I thought so

 AUSA: Did you discuss with lawyers that the funds were coming from FTX customer funds? SBF: I would not characterize it that way. So no, I didn't discuss that with lawyers. AUSA: Why not just do it through Alameda? SBF: The investment target did not want Alameda

AUSA: For example with Robinhood you did not want Alameda to be the investor? SBF: Right. It could be a conflict of interest.  AUSA: Was the buy out of Binance financed through loans? SBF: My memory is that it may have been a loan to Paper Bird

AUSA: Did you believe you should not embezzle customer assets? Cohen: Objection!  Judge: Sustained. SBF: No I did not believe I should do that. Cohen: You don't have to answer after sustained. Haven't you been here for four weeks? SBF: I felt I had to answer it

 AUSA: What about CEOs of exchanges using customer funds for personal expenses? Cohen: Objection. Judge Kaplan: Sustained as to form. AUSA: Did you have conversation that led you to believe it was correct? SBF: We spoke about margin calls AUSA: Let's talk about Dan Friedberg - you hired him?

SBF: Yes.  AUSA: You were reluctant in hiring a general counsel? SBF: I was reluctant to hire the wrong general counsel. Cohen: Objection Sassoon: It is relevant if he did not want to hire a respectable lawyer

Judge Kaplan: I'll allow it, without necessarily endorsing the word "respectable." AUSA: Were you aware that Dan Friedberg was general counsel at a firm that had an insider trading scandal?  SBF: Yes.  A high level scandal. AUSA: A criminal scandal? Cohen: Objection

 Judge Kaplan: I'll allow it. AUSA: Were you aware that Dan Friedberg used illegal narcotics -- Cohen: Objection! Judge Kaplan: Sustained. Ms. Sassoon! AUSA: May I have a moment? No further questions Cohen: Nothing further. Judge: You're excused, Mr. Bankman-Fried

 Judge Kaplan: I'll hear from counsel on the issues have I have to decide. Cohen: We think we can elicit the testimony we got today. We are not advancing the formal advice of counsel defense. Only that he reasonably relied

 Judge Kaplan: Let's assume someone robs a bank, knocks over a Walmart, whatever, and get a chunk of money. Do we agree that engaging in a transaction to conceal the source of the money is money laundering? Cohen: Sure.

 Judge Kaplan: Now he gets legal advice about how to buy a condo with the money. The defendant is charged with money laundering. The defense is, I had a lawyer, I didn't have a criminal intent. How is that different from what you're trying to do, in principle?

Cohen: Robbing a bank is illegal. Our position is that the source of fund was not illegal. Judge Kaplan: But you need to tell the lawyer what the facts are. Cohen: There were times, like with the founders' loans.  Judge: I'm dubious, but I understand your position Inner City Press @innercitypress · 9m AUSA Roos: This is a collateral involvement of a lawyer which doesn't go to the key question, the use of funds. There's no testimony that Dan Friedberg was told about the Agent Agreement. Judge Kaplan: Can Sun said there were omnibus wallets. I put that to 1 side

Judge Kaplan: I plan to rule tomorrow morning AUSA: We're planning cross examination- Judge Kaplan: Why am I not surprised?

AUSA:  If the witness is non responsive it'll take longer. Cohen: Our subpoena to Fenwick & West was denied. Judge: A trial subpoena? A: No. Judge Kaplan: OK, thank you. Adjourned.

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