DOJ Clamps Down on SBF’s Regulatory Loophole Defense Amid Ongoing Fraud Trial

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The Department of Justice (DOJ) has asked the judge in Sam Bankman-Fried’s (SBF) criminal case to restrict several planned defense arguments about financial regulations. Prosecutors said in a new court filing that SBF should not be allowed to claim he’s innocent because cryptocurrency exchanges faced little regulation. They also argued he can’t use his compliance with U.S. laws as proof of good faith.

Prosecutors Seek to Limit SBF’s Defense Arguments About Regulations

In the Wednesday letter, federal prosecutors asked U.S. District Judge Lewis Kaplan to reconsider or clarify a recent order limiting trial evidence. They aim to block Sam Bankman-Fried (SBF) from arguing that FTX’s lack of U.S. oversight made his actions legal. Prosecutors called the alleged claim “inaccurate” and “highly misleading.” They said criminal laws still banned misappropriating customer assets.

“While the existence of a law might be relevant to establish a statutory duty of care, the absence of regulation is not relevant to whether money was, in fact, entrusted to the defendant’s care by his victims,” federal prosecutors wrote. “And evidence or argument about the absence of regulation is only likely to confuse the jury into believing that there must be a regulation imposing a duty for misappropriation to have occurred.”

Prosecutors also urged Kaplan to bar SBF from citing his adherence to U.S. rules for the FTX U.S. exchange. They argued that general legal compliance doesn’t prove his innocence on specific charges like fraud. Prosecutors led by U.S. Attorney Damian Williams said SBF can present evidence of a “good-faith belief” that moving FTX customer funds was allowed. But they contend following other laws is irrelevant to his intent.

“As the court did with evidence of other exchanges’ actions, if the defendant were to be permitted to inquire about regulations, the absence of regulations, or regulation of FTX US, the government respectfully submits that the defendant should be required to give notice to the court prior to questioning a witness about it,” the letter from Williams details.

Additionally, prosecutors want to restrict SBF from rebutting their evidence about FTX’s bankruptcy. They argued the failure is directly relevant to SBF’s alleged fraud conspiracy. Prosecutors also asked the judge to clarify that SBF can present “admissible evidence” about philanthropy, but not prop up his character.

SBF’s trial on fraud and other federal charges started on Tuesday, October 3, 2023, and jury selection has continued into Wednesday. As of writing, his lawyers have not yet responded to the prosecution’s latest motions.

What do you think about the federal prosecutors’ motions submitted on Wednesday? Share your thoughts and opinions about this subject in the comments section below.