Bankman-Fried Fights to Use Tech as US Expands Criminal Fraud Case

As a third member of Sam Bankman-Fried’s inner circle became a prosecution witness, lawyers for the co-founder were preparing for a more immediate fight: his use of the internet and mobile apps while out on bail.

Bankman-Fried now faces the culmination of a tense standoff with the judge in his criminal fraud case over his communications. Free on a $250 million bond but confined to his parents’ house with a monitoring device around his ankle, he has already angered US District Judge Lewis Kaplan by using encrypted-messaging apps and a virtual private network, or VPN, which hides a computer’s identity.

“Why am I being asked to set him loose in this garden of electronic devices?” Kaplan demanded at the most recent bail hearing in lower Manhattan, on Feb. 16. For now he has barred Bankman-Fried from using either of those tools and from contacting former or current FTX employees.

Read More: Bankman-Fried Banned From VPNs He Says He Used Just for Football

Late Wednesday, in response to a court order, the two sides jointly proposed a pair of technology consultants to advise the skeptical judge on a raft of restrictions that balances the defendant’s rights and needs with the integrity of the judicial process. Kaplan has threatened to revoke the bail package altogether and send Bankman-Fried to jail ahead of his October trial if he isn’t satisfied with the constraints.  

The protracted struggle over Bankman-Fried’s bail conditions comes as he grapples with a far more acute threat in the trio of government cooperators. On Tuesday former FTX engineering chief Nishad Singh pleaded guilty to fraud as part of a deal to work with prosecutors against his old boss. Gary Wang and Caroline Ellison pleaded guilty last year to charges related to their respective roles at the cryptocurrency exchange and its trading arm, Alameda Research, and are also working with the US.

Read More: Bankman-Fried Circle Continues to Crumble With Singh Guilty Plea

Singh’s plea, in turn, followed a revised indictment against Bankman-Fried that featured four new charges and a wealth of fresh detail focused on an alleged plot to shape US crypto policy.

Meanwhile the roiling bail drama highlights the growing complexity of such matters as communication technologies evolve.

‘Harder to Disentangle’

“The fact that we have these single boxes we carry in our pocket that do everything in daily life now means that it’s much harder to disentangle the dangerous kinds of conduct from very routine things,” James Grimmelmann, a professor at Cornell University Law School, said in an interview.

Kaplan banned the use of VPNs on Feb. 14after it emerged that Bankman-Fried, 30, had used one — just to watch football, his lawyers say. Kaplan, 78, had put encryption apps such as Signal off limits for fear the defendant could seek to influence potential witnesses, and he couldn’t be sure Bankman-Fried had used the VPN only to see the games, especially when most fans had happily followed the gridiron action without one.

Read More: FTX Founders Traced an Arc of Brotherhood and Betrayal

The judge’s exasperated question about the garden of devices came after a volley of filings from both sides. In a sign of the times, the prosecution and defense aren’t really wrestling with each other on this point as much as they are striving to put a proposal in front of Kaplan that he won’t shoot down. 

Bankman-Fried stands accused of a massive fraud that ended in FTX’s collapse in November. He has pleaded not guilty and, in voluminous public communications, has taken responsibility for the debacle but said he did nothing illegal. 

A spokesman for Bankman-Fried declined to comment. 

The New ‘Draconian’

At the hearing his lawyers described a proposed bail package limiting him to a single monitored cellphone and laptop as “draconian.” Attorney Mark Cohen said he can’t work with his client if Bankman-Fried can’t use Google Docs or a similar tool. 

Yet that same Google domain opens the door to a lot of other functions, including doing searches, sending instant messages and having video chats, according to Grimmelmann.

The judge, well known around 500 Pearl Street for banning devices in his courtroom, noted at the hearing that the proposal would still let the defendant use electronic devices.

“You’re putting an awful lot of trust in him, aren’t you?” he asked. 

‘Criminal Mastermind’

That depends on how you look at it, said Roderick Kennedy, a retired chief judge for the New Mexico Court of Appeals and an adjunct professor at the University of New Mexico School of Law.

“If he’s a willful 2-year-old who wants to have things his way and watch TV because he’s used to it, that’s one thing,” Kennedy said. “If he’s the criminal mastermind the US government paints him as, having these capabilities is worrisome.”

Read More: US Closes In on Bankman-Fried Inner Circle With Singh Probe 

He’s no 2-year-old, according to one of the letters Kaplan has gotten from the public. Nicholas Weaver, a lecturer in computer science at the University of California at Berkeley, called the bail package “remarkably lenient” for not banning all internet use.

Weaver cited the case of Larry Harmon, an Ohio man who pleaded guilty in August 2021 to operating a darknet-based service that laundered more than $300 million in cryptocurrency. He said Bankman-Fried poses a risk, as Harmon did, of accessing unknown assets or even fleeing.

The Old Days

That doesn’t mean Kaplan is going to snatch the internet away from Bankman-Fried altogether, as the court did to computer whiz Jerome Heckenkamp in 2002, while the 22-year-old awaited trial on charges that he hacked into the computer systems of eBay Inc.Qualcomm Inc. Heckenkamp later pleaded guilty and served eight months in prison.

Read More: FTX Bankruptcy Team Met With US Prosecutors Probing Collapse 

Then there’s the “crocodile of Wall Street,” Heather “Razzlekhan” Morgan, accused of scheming with her husband to launder more than $4.5 billion in crypto stolen from a 2016 hack of the Bitfinex exchange. After her release to house arrest in February 2022, she was blocked from engaging in any crypto transactions and barred from connecting to the Internet except through a single, monitored device. 

So why Bankman-Fried using a cloaking device to see the pigskin fly? 

That’s what Kaplan wanted to know.

One Regret

“What was he doing watching football games on a VPN, if that’s really what he was doing, that anybody could turn on their television set and watch for nothing?” the judge asked his lawyer at the bail hearing.

His parents don’t own a TV, Cohen responded. (They’re professors.)

“I wish I had sent him a television from Best Buy, your honor,” he said.

The case is US v. Bankman-Fried, 22-cr-673, US District Court, Southern District of New York (Manhattan).

— With assistance by Ava Benny-Morrison