This is Bloomberg Law with June Brusso from Bloomberg Radio.
Bankman Freed and his co conspirators sold billions of dollars from FTX customers. He used that money for his personal benefit, including to make personal investments and to cover expenses and debts of his hedge fund Alometer research.
And now a jury will decide whether sam Bankman Freed is guilty of orchestrating a scheme to build investors and FDx customers out of billions of dollars. In the ten months since Manhattan US Attorney Damian Williams announced the charges, prosecutors have collected millions of pages of evidence, including financial records, spreadsheets, memos, Google documents, and private communications. They've also flipped three of SBF's top lieutenants, who will now be testifying against him.
My guest is former federal prosecutor Brian Klein, a partner at make Or Law. Tell us about the case against Sambank and Freed.
Sure, well, there's a number of charges there, but overall the focus is that the defrauded people who place their money and trust into FTX. So there's a variety of different charges and how they get there. But that's the center of the allegation. So that's what the trial is going to be focused on, is what happened at FTX, how that related to Alameda, which was this as alleged to venture Arm essentially an affiliate of FTX, And then where the money went?
Is it a mix of substantive and conspiracy charges and you know, tell us what the difference is.
There's a number of charges here, including conspiracy charges like conspiracies commit wire fraud as well as the underlying wirefraud charge itself. And conspiracy charges can pose some difficulties for prosecutors because often jurors innately can understand a straightforward charge like you committed wire fraud, that's the allegation, Whereas when you have a conspiracy oftentimes the actual jury instruction can be difficult to follow, and that juror can get sometimes confused.
In this case, though you have a number of his alleged co conspirators who everyone expects to testify, former senior
officials at FTX. You know, the prosecutors, I imagine, think they're going to paint a very vivid picture of what happened here through this testimony of actual witnesses who were there when this was all going down, And so I think that's going to put a lot of meat on the bone here that sometimes, isn't there A lot of times there is a case where the alleged co conspirators aren't available to testify for one reason or another, or actually are co defendants and don't testify. But in this case,
Sam is facing these charges alone. He'll be the one person there sitting at the table with his lawyers, and his former colleagues and former underlings will be getting on the stand as we understand it, and testifying against him and pointing the finger at him.
Three FGX and Aalomeda executives, his top lieutenants, including supposedly the star witness is likely to be Carolyn Ellison, who ran alimed and was in and on again off again relationship with Sam Bankman freed. So how does the defense go after them when there are three of them saying the same thing.
Well, we don't know that they're all going to be saying exact same thing. So that's one area that the defense can try to probe on cross examination. We can expect them also to attack the credibility of each of the three and the fact that they pleaded guilty and
are probably hoping for some benefit for their testimony. And particularly with miss Ellison, I think, you know, just if we follow what Sam said about her since he's been arrested, and what we learned through the New York Times, you know, we can expect the defense to make some issue about their relationship and you know, maybe try a sort of guilted lover defense, which is, you know, she is actually responsible for things kept him in the dark and that
he is upset in him, or how they break up tended. That seems to be a defense they're angling for, but we won't know until she gets on the stand.
Besides those witnesses, prosecutors have apparently amassed millions of pages of evidence. The evidence includes financial records, spreadsheets, Google documents, and private communications and notes that Ellison took after conversations with him, so they'll use that to buttress the testimony of their witnesses.
Absolutely, if you're a prosecutor, you want to try to find the quote independent pieces of evidence that support what the person's saying. So those could be emails that were sent contemporaneously, text methoges that were sent contemporaneously, or they could be financial records that show what happens. So you're trying to buttress that person's testimony with other pieces of evidence that really can't be disputed or will be very
difficult to dispute. So we can expect that to be their plan, and that they'll see that way with her, but also with the other witnesses too. You know, they're going to want to not just have people get up there and say things and point the finger at Sam. They're going to want people to get up there and say things and show them documents that help paint the portrait of what happened, or at least what they claim
happened there. And then Sam's lawyers probably have their own documents they're going to show to the witnesses, you know. I mean one thing the defense does is, you know, they try to the legal word is impeach, you know, undercut the testimony. And they will probably be some documents out there that maybe miss Elison hasn't seen or the others haven't seen, or even aware of that they'll show
to her and try to catch them off guard. You know, these are savvy prosecutors though, and they're expecting that and so prosecutors often build into their examination of the witness undirect They'll try to front some of those issues and have the witness make statements about some of the things that may be vulnerabilities to undercut that attack on the defense. They try to get in front of the issue as much as they can without undermining the credibility of their own witness.
Before he was arrested, Sam bangmanfre You'd made all kinds of statements that seem like admissions of some of the facts here. How does the defense deal with that?
That's a real struggle for any defense lawyer if your client is making statements before charged that really to the impending charges, or in this case, he's made statements since being charged to various people. I suspect that was not, you know, his lawyer's advice to keep talking to Tuckman, and probably went against his lawyer's device. And there were reports that a number of lawyers for lawyers has now had given him that advice and sort of withdrawn from
representing him. Even so, that makes sure the defense order's job just that much more difficult, because now you've got statements that are sort of immediately after the collapse of FTX you know, he went on various podcasts and made statements to reporters and etc. And then you have statements after even he's been arrested, or he's making different claims and putting forth his own narrative of what happened here.
And so he's really giving the prosecutors a big advantage here in terms of how they prepare their case because now they got a whole wealth of statements. They also get a sense of where he thinks he might be raising defenses, so they can start to plan for that. More So, I don't think his lawyers would have ever recommended he talked to the press or make these statements that really only hurts their ability to try to get him acquitted.
So do prosecutors have to prove his intent? And will that be hard?
Absolutely, they have to approve his intent. I mean, this is not a drug case where it's like, oh, you were in possession of a suit case full of cocaine, which you just can't have a suitcase full of cocaine, right, The question is did you have it? You know, it's usually not like what were you thinking when you were carrying the due case full of cocaine? It's like self evident here. It's different though with any type of white collar fase and these type of charges, you know, fraud charges,
you have to show often specific intents. So that means that the person set out knowing what they were trying to do to defraud the person and actually did then defraud them, or at least attempted to defraud them. So that's a pretty eye burden, and you have to show up i by proof beyond a reasonable doubt too. Here though, the prosecutors have a wealth of apparent inside witnesses, the lieutenants you mentioned, as well as tens of thousands, millions
of pages of documents and communications. Now, this case isn't going to be you know, ten thousand exhibits, you know, hundreds of thousands of communications. That's just an overwhelming amount. Even in a case with voluminous discovery or luminous document
sized or obtained. Usually the prosecutors focused on a set of key documents or communications and they try to show the jewelry as easily as possible and as in a non confusing manner, what happened here, And they're going to highlight I'm sure certain types of statements, certain communications, and certain key documents. Even the case is this bit, it often comes down to maybe ten or twenty documents that are really central to the prosecution's theory, and the same
number that may be central to the defense. So even though this may seem like millions and millions of pages of documents, I'm sure it is. Often these cases come down to a very discreete set of communications and documents.
He's had some pre trial setbacks, including that he's now in jail. Judge Kaplan put him in jail because of communications he made. How much more difficult does it make it if your client is in jail in the final weeks of preparation for the trial.
It's just magnitudes more difficult. I mean even in the months before, at any point before. It's more difficult when your client is detained leaving up the trial because you're often wanting to meet with them talk about different pieces of evidence. And when someone's in jail, you can't just pick up the phone or send them an email or a text message or whatever. And these jails have rules
about when you know you can meet for how long. Now, lawyers are given a lot more leeway than just a family member or a friend trying to visit somebody, but there are still you know, rules and times, and they can't communicate in a certain manner. So it just makes it a lot more difficult for the defense lawyers to prepare. I suspect there are people there with him every day and the lead up to it, whether it's more junior attorneys or pairalegals, and sometimes the lead attorneys will of
course be visiting and talking through issues with them. But then those attorneys have to leave their offices, go through security. They can't bring their phones in, they can usually only bring a laptop. They set up in a special way that the jail permits, and so it just makes it a lot more difficult for everybody involved in preparing the defense. And the prosecutors don't have that disadvantage. You know, they're
at their offices, they're meeting with their witnesses outside. Though you know, this was a major stepback for Sam's legal defense team. I don't think there's any way to sugarcoat.
That Bankman Freed's lawyers want to use an advice of council defense and the judge hasn't decided yet whether he's going to allow them to do so. Tell us about that defense. In the context of this case.
That's a defense that is often considered and rarely deployed. And the reason why is if you rely on an advice of council defense. And basically what you're saying is, hey, my lawyers told me this was fine. You know, they may have been wrong ultimately, but that's not my fault because I actually went to lawyers and sought legal advice and they gave me their legal opinion, and I am good faith relied on it. The difficulty with that is that defense in general is one and this is the
biggest hurdle. You have to disclose to your lawyer under this defense all the facts that were relevant to them giving you their opinion, and that's usually the major hang up. So you can't just tell them, Okay, here are facts AB and D and forget to tell him about B. Is if you don't tell him C, that would change their legal opinion, and so that defense is often thought, but usually the issue is coming down to the missing factual disclosure that would allow the lawyer to render legal advice.
I am skeptical that they'll raise that defense, or if they do that it would succeed, But you know, I'm not inside the interworkings defensive course and don't know. But judges do want to know in advance a trial if that defense is being raised, because it creates a lot of different hurdles for the prosecution, because the prosecution will want to know kind of what's coming down the pipe. And so I think it's unlikely this defense is actually raised, but if it is, it will make for a much
more interesting trial. It's already an interesting trial.
The judge is ruled that SBF can't call seven expert witnesses he wanted to call, though he left the door open to call. I think too in response to the government's witnesses, perhaps, what do you think about the judge just ruling out these witnesses.
I think judges are fine. In trial is often involved about all of experts. So the offense will put on some experts, and the prosecution will put on some experts, and they'll be talking about the same things, and then it's up to the jury to decide whose testimony they want a credit of those experts. What they don't want is a lot of duplicative experts, A bunch of experts
on one side all saying the exact same thing. So that it feel like, well, we have six experts say this, you only have two, and so that's not really what they're looking for. And so I think judges like to narrow down the number of experts to make sure that they're touching on the same issues and not being duplicative. Also, there's sometimes areas that aren't really the subject of expert testimony. Both the prosecutors and the defense may try to call
somebody and actually it's really a factual issue. So the judge instructs on the law and the jury decides the facts, and the experts can offer an opinion in a specialized area for the jurors to consider, but they can't tell the jurors ultimately like this means this right, Like you should assume, based on this set of fact that there is no way this person couldn't have the intent to do this. You know, they can't go to the ultimate issue,
that's what it's called. That's up for the jury. So this judge is a very sophisticated, smart deson judge who was known to run a tight ship, and it's not surprising to me that he would rule a way to try to keep the trial moving along and eliminate some of the experts.
I mean, besides possibly advice of counsel. What do you think might be his defense.
Well, it seems to be his defense is that he was out of the loop, that things were happening, that he was busy doing certain things, and that other things behind the scenes people were doing either without his permission
or knowledge. Now we won't know intel opening statements how he's going to present his defense, but that seems to be the angle they are if you tease out things from the defense filings, they they're going and it may be the added layer of not only getting not to know exactly what was going on, but the things he did know that were going on, he had sought legal advice far and thought they were fine. That appears to
be the direction of defense is headed. But we really won't know, and they may pivot or spand or narrow the scope of the defense. So we really won't know until opening statements, and we frankly may not even know until his closing statement because the government has the burden of proof, and you know they're going to put on a very thorough open statement that explains their case and why they think, you know, Sam committed these crimes and that they can prove that they meet all the elements
of the charges. Sometimes the defense puts on a much more higher level opening statement that asks the jurors to, for example, pay attention to the evidence, to keep an open mind, reminds the jury that the defendant, you know, is in the centutel proven guilty, and the high burden the government has to meet hereof be on a reasonable
doubt that seems less likely in this case. The case is obviously gotten a lot of attention, and I think when you talked about the billions of dollars at issue here, the sheer number of things that went on here, I think the defense is going to offer a pretty robust opening statement.
Do you think that Sam Bankman Freed will take the stand.
I think that's more of a possibility here than is regularly the case. Ultimately, that is not his lawyer's decision. That's his decision based on his talks with the media, his vocal personality on social media, and sort of his need to stay in the limelight here. I would be surprised if he didn't take the stand, but I think it's possible he won't because it's is very unusual I'm with put a study on it, but I bet at least ninety percent of the time the defendant does not
get on the stand. But here I will put the odds at at least fifty to fifty that he gets on the stand. And that's just because of the way his personality. He seems like the type of person that wants to get up there and give his version of events.
I think if he does do that, you're going to have days of testimony here, and it could be very similar to what happened in the Arena's Child of Elizabeth Holmes, where she got on the stand, you know, tried to convince the jury of her version of events, obviously unsuccessfully.
Is this a case where it would be difficult to find a jury?
No, I mean every case you can get a jury, right, even in the most high profile cases in the United States throughout the last you know, fifty years, they've been able to find juries. You know, it's going to take some time here because obviously this case has gotten so much attention, and a number of people probably do have preconceived notions about his guilt or innocence. Most likely, I guess they have preconceived notions that he's guilty, and so I think it will take some time, at least a
few days to get it very selected. This judge, these lawyers will work their way through the perspective jurors and find them. I think they're going to call a large group of people though well over one hundred I would guess as a pool of jurors to work their way through. But ultimately, even knowing about a case doesn't preclude you from being a juror. The real test is are you
willing to be fair and impartial? That's what the judge is going to be looking for is to see twelve fare and impartial jurors.
Jurors who can sit for the up to six weeks the trial is expected to take. Thanks so much for being on the show, Brian. That's Brian Klein, a partner Waymaker Law. Coming up next on the Bloomberg Lawn Show, What happens when jury deliberations descend into chaos. I'm June
Grosso and you're listening to Bloomberg. An Atlanta trial threatened to descend into chaos after jurors clashed over race and class while wayne charges against a wealthy developer and two others accused of arranging one point three billion dollars in phony two tax deductions. Problems began to emerge soon after the jurors began deliberating last week and deteriorated into acrimony,
causing jurors to complain to the judge. Federal Judge Timothy Batton then interviewed jurors in open court and in his chambers, met with lawyers, and finally, after a change of heart, dismissed one juror. My guest is Bloomberg Legal reporter David Voriacis David tell us what this trial was about.
Jack Fisher is a developer and accountant who was on trial for selling tax deductions to wealthy taxpayers in exchange for investments in a group financing known as syndicated conservation easements. Now, this is an arrangement that the IRS hates and has been cracking down on. And essentially what happened was partnerships would promise that they would not develop land, and in return,
the investors would get inflated tax deductions. According to the IRS, and those tax deductions in the Jack Fisher case relied on inflated appraisals and on backdated documents. The IRS had been investigating this process for several years, and Jack Fisher was the first promoter of syndicated conservation easements to be indicted. He went to trial in Atlanta over the summer, and his trial lasted nine weeks.
Jury deliberations are secret. How did you find out that there was trouble in the jury room?
The jurors themselves complained to the judge that one of the jurors, who was referred to in court papers as Juror twenty six, was refusing to deliberate, and that juror walked out of the deliberation room and went upstairs in the courthouse. Now, jurors are not supposed to deliberate unless all twelve are together at the same time in the same room, So without her in the room, they could
not deliberate. What was a very complicated fraud case that involved dozens of charges against Jack Fisher and two other defendants.
There were no racial aspects of the trial, but racist comments were made in the jury room.
That's correct. This was a pure financial trial that turned on complicated testimony about partnerships and about tax deductions. And so what happened was the judge on Monday of last week, decided that he would interview several of the jurors in chambers, and this is very unusual because during jury deliberations it's considered a sacro saying process that no one is supposed
to know what goes on. So what came out as a result of those interviews by the judge was that one of the jurors during number twenty six, who's white, said that another jur during forty four, who is black, had said weeks earlier that he would convict these defendants because they're rich, white, and entitled. And then juror twenty six, again who's white, said that she felt that she was standing up for white people during the deliberations, and this
she said in the privacy of the judge's chambers. However, it was transcribed so the other lawyers could see it, and then they put essentially that exchange in court filings, which is how I was able to see it now. This then escalated into a very tense and emotional conflict in which the Justice Department moved to dismiss during twenty six based on her comments about standing up for white people.
And they also said that if in fact, juring number forty four had said that he was going to base his verdict on whether the defendants were rich, white, and entitled, that he should be dismissed as well. So what happened was that last week, last Monday, the judge said that he would not dismiss the jurors and that he would
urge them to continue deliberating. And then on Wednesday of last week, the judge said that he had reconsidered and that he was going to dismiss during twenty six because of her comments and because he concluded that she was still not to live.
So I assumed that the defense objected to removing juror twenty six who seemed to be leaning in favor of their client.
Yes, she had made clear that she was leaning toward acquittal, and they said that it's improper under the procedure set up in a Supreme Court decision on removing a juror for racial animus. And they essentially said that the jury deliberations were no longer deadlocked as they had been earlier or stalled because she wouldn't deliberate, because the jury had indicated that they had reached a verdict on eight or
nine of the dozens of charges. But The judge ignored that and said that the other considerations were so powerful that he was left with no choice but to remove that juror.
Did anything happen between Monday and Wednesday that made him or Tuesday and Wednesday that made him change his mind?
He said that he was anguishing over this and had given it a lot of thought and it didn't essentially didn't sit right with him, and so that's why he was reconsidering and did it as they say Sue Sponte, which is on his own, without anyone requesting him to do that.
So then how did it work after that?
After that, he replaced that juror with another juror who happened to be black, and this was a predominantly black jury to begin with. They then deliberated two days and on Friday of last week, they found Jack Fisher and one of his co defendants, Jim Sinnett, who's a lawyer, guilty of all the charges. They also acquitted Clay Wible, who was a real estate appraiser and was charged with being part of the scheme.
So I assume that the defense is going to appeal based on the judge removing this juror.
The defense indicated in the many motions that were filed last week that that's exactly what they were going to do.
It sounds like a good issue for appeal.
It's clearly very sensitive and fraught issue that's been litigated in the courts, and part of what the defense was doing is they were trying to lay down a clear record for the appeals courts.
Yeah, because, I mean, as you mentioned, it's so rare that a juror is dismissed from a trial in the middle of deliberations. I mean, it's incredibly rare.
It's quite unusual, and in this case, the defense felt it was really unfair to them and to their clients' rights. And one of the reasons that the judge delayed so much is that he made planes several times that he's trying to protect the rights of the defendants in this case.
And the kind of deal involved in this case is something the IRS has been going after.
The IRS for several years now has been going after promoters of this type of investment again called syndicated conservation easements, because they believe that while the practice of donating conservation easements is allowed by Congress, the reality of the way it was carried out in syndicates like this one abused the letter and spirit of the law and was essentially robbing the US Treasury of tax revenue that it deserved.
You're going to stay with me, David, and coming up, we're going to discuss New Jersey Senator Bob Menendez's first news conference since his indictment on corruption charges. This is Bloomberg.
I firmly believe that when all the facts are presented, not only will I be exonerated, but I still will be the New Jersey's senior Senator. To those who have to judgment, you have done so based on a limited set of facts framed by the prosecution.
Today, New Jersey Senator Bob Menendez held his first news conference since his criminal indictment on corruption charges, rebuffing calls for him to resign and saying he'll be exonerated. Prosecutors alleged that Menendez accepted gifts including a luxury car, gold, and hundreds of thousands of dollars in cash, in exchange for using his influence to bolster US assistance to Egypt
and to benefit three New Jersey businessmen. I've been talking to Bloomberg Legal reporter David Voriakis David tell us about the charges.
Federal prosecutors unsealed an indictment on Friday that charged him, his wife, and three New Jersey businessmen in a bribery conspiracy. This came after US authorities had raided the senator's house where he lived with his wife in Inglewood Cliff's, New Jersey, and found nearly half a million dollars in cash that was in envelopes, that was in his closet, that was in a safe. They found tens of thousands of dollars more in cash in a safe deposit box for his wife.
And what they said was that the Senator had engaged in several conspiracies to help the government of Egypt and to help these three businessmen in their various legal disputes, one of whom was facing indictment in New Jersey and the other one had an associate who was under indictment in New Jersey. So they asked the senator to help them to use his influence in all of these cases. What's quite shocking in this case is the amount of cash as well as gold bars that were found in
the senator's home. So on Monday, Menendez resisted a number of calls that came over the weekend for his resignation, including by the New Jersey Governor Murphy, by several representatives in Congress from New Jersey. And he said quite defiantly on Monday that he was not resigning, that he was going to fight the charges in court, that he was not guilty.
He also gave an explanation for the cash right.
He is the son of Cuban immigrants, and he grew up in Union City, New Jersey, which is a heavily Cuban community. He had been the mayor there, he'd been an elected official representing Union City, and his press conference was in Union City at a community college. And he said that because of his family's experience in Cuba, where they feared confiscation of money by the government, that he had been in the regular habit over the past thirty years of withdrawing cash that he legally earned.
Did he say anything about the gold bars.
He did not mention the gold bars. He also didn't mention the mercedes that prosecutors said one of the co defendants used to bribe him.
What happens next in this case?
The Senator, his wife, and the three New Jersey businessmen will make an initial appearance on Wednesday in Federal Court in Manhattan. It's expected that they would all enter not guilty please, assuming they're arraigned, and the judge would then probably set a calendar for motions and future hearings. He may set a trial date.
And remind us about Menendez's last trial.
Senator Menendez was indicted in twenty fifteen in a different bribery case involving a Florida physician. He went to trial in twenty seven in federal court in Newark, New Jersey, where the jury deadlocked and a judge declared to hung jury, and the Justice Department later dismissed the case rather than
bringing it again. Menendez was reelected in twenty eighteen, and now he's up for reelection again in twenty twenty four, but he hasn't said since his indictment whether he intends to run for reelection or not.
Thanks so much for being on the show, David. That's Bloomberg Legal reporter David Voriacis, and that's it for this edition of the Bloomberg Law Show. Remember you can always get the latest legal news on our Bloomberg Law podcast. You can find them on Apple podcasts Spotify and at www dot bloomberg dot com, slash podcast, Slash Law, and remember to tune into The Bloomberg Law Show every weeknight at ten pm Wall Street Time. I'm June Grosso and you're listening to Bloomberg