© Reuters. FILE PHOTO: Former FTX Chief Govt Sam Bankman-Fried, who faces fraud fees over the collapse of the bankrupt cryptocurrency change, departs from his courtroom listening to at Manhattan federal courtroom in New York Metropolis, U.S. January 3, 2023. REUTERS/David De
By Luc Cohen
NEW YORK (Reuters) – Sam Bankman-Fried might discover it laborious to argue the fraud fees towards him ought to be tossed due to uncertainty as to how U.S. legislation treats cryptocurrency, as different high-profile defendants in felony circumstances involving digital property have accomplished.
That’s as a result of Manhattan federal prosecutors’ fees towards the founding father of now-bankrupt crypto change FTX have largely sidestepped an ongoing debate as as to whether cryptocurrencies ought to be regulated as securities or commodities, authorized consultants instructed Reuters.
Bankman-Fried, 30, was indicted on two counts of wire fraud and 6 conspiracy counts final month in Manhattan federal courtroom for allegedly stealing FTX buyer deposits to pay money owed from his hedge fund, Alameda Analysis, and mendacity to fairness traders about FTX’s monetary situation. He has pleaded not responsible.
“It is a fairly easy deception,” stated Shane Stansbury, a professor at Duke College Faculty of Regulation and former Manhattan federal prosecutor. “You actually needn’t get into the weeds of how we view cryptocurrencies.”
The query of whether or not cryptocurrencies are thought-about securities, like shares or bonds, or commodities – a class that in america encapsulates international foreign money buying and selling in addition to uncooked supplies resembling – stays largely unresolved.
However the uncertainty is irrelevant to many of the fees leveled towards Bankman-Fried, in accordance with consultants. Whereas he faces one rely of conspiracy to commit securities fraud, that cost alleges he misled FTX’s fairness traders, and doesn’t contact on the character of the property traded on the change.
He additionally faces two wire fraud fees and two associated conspiracy counts for allegedly offering false data to Alameda lenders concerning the hedge fund’s monetary well being and for the alleged theft of buyer property.
“There is not any want to determine that what the shoppers finally purchased with fiat foreign money was a safety or commodity or no matter,” stated Mark Kasten, counsel at Buchanan Ingersoll & Rooney in Philadelphia. “Clients put cash into the platform and the cash was supposed for use in a sure method. And in accordance with the allegations within the indictment, it wasn’t.”
A spokesman for the U.S. Lawyer’s workplace in Manhattan declined to remark.
Bankman-Fried’s protection attorneys didn’t reply to a request for remark. The onetime-billionaire has beforehand acknowledged shortcomings in FTX’s threat administration practices, however has stated he doesn’t consider he’s criminally liable.
DEBATE COULD DECIDE REGULATION
Gary Gensler, the U.S. Securities and Alternate Fee (SEC) chairman, has stated bitcoin is a commodity however that different digital property behave extra like securities – outlined broadly as contracts wherein traders revenue from others’ efforts – as a result of their worth derives from promotion.
The controversy issues to cryptocurrency firms as a result of it might decide which company regulates the buying and selling of digital property. The U.S. Commodity Futures Buying and selling Fee (CFTC) is seen by many crypto gamers as probably friendlier than the better-funded SEC.
San Francisco-based blockchain funds firm is contesting a 2020 SEC lawsuit accusing it of conducting an unregistered securities providing by arguing its XRP token isn’t a safety and thus not topic to SEC oversight. The case is ongoing.
Damian Williams, the highest federal prosecutor in Manhattan who took workplace in 2021, has made enforcement of cryptocurrency-related monetary crimes a centerpiece of his tenure.
Final 12 months, within the first-ever insider buying and selling circumstances involving digital property, his workplace introduced wire fraud fees towards Nathaniel Chastain, a former worker of non-fungible token (NFT) market OpenSea, and Ishan Wahi, a former supervisor at cryptocurrency change Coinbase (NASDAQ:) World Inc.
Each have pleaded not responsible and argued the costs ought to be dismissed as a result of insider buying and selling fees should contain securities or commodities. In bringing wire fraud fees in each circumstances, prosecutors prevented taking a place on how cryptocurrencies or NFTs ought to be labeled.
A decide in October denied Chastain’s attorneys’ movement to dismiss the costs.
It’s unlikely Bankman-Fried’s attorneys will try an identical argument as a result of the wire fraud fees are extra easy, Kasten stated.
He stated the Massachusetts Institute of Expertise (MIT) graduate’s protection would probably deal with the arguments that he had no intent to commit fraud, that different executives at FTX and Alameda bore the blame, and that he was not concerned within the day-to-day operations of the businesses.
However prosecutors might additionally show wire fraud fees by establishing {that a} defendant willfully blinded himself to the results of his actions, stated Victor Hou, a accomplice at Cleary Gottlieb and former Manhattan federal prosecutor.
“Wire fraud is a strong and regularly used weapon within the prosecutor’s arsenal as a result of it captures an exceptionally broad vary of unlawful conduct,” Hou stated.
