Welcome to the Boomberg Law Show. I'm June Grosso. A third witness from his inner circle who flipped takes the stand against Sam Bankman Freed and his attorney's raised questions related to his taking the stand in his own defense. A top bankruptcy judge resigns amid ethics questions, and a black high school student in Texas sues after being suspended
over his hairstyle. Prosecutors have built their criminal fraud case against Sam Bankman Freed by reaching cooperation deals with his inner circle, and the third member of that inner circle testified against him today in court. Nishad Singh told the Manhattan jury that he was in severe emotional distress in the days leading up to ftx's failure as he dealt with accusations from ftx's former chief regulatory officer and others that he was partly to blame for the company's demise.
Sing claimed he had only learned about the massive eight billion dollar hole in the company's balance sheet and the misuse of FTX customer funds in September of twenty twenty two, about two months before the firm file for bankruptcy. Bankman Freed faces decades in prison on charges that he funneled FTX customer money into Alimeter Research and affiliated hedge fund for risky trades, political donations, and expensive property before both
companies collapsed into bankruptcy last year. Joining me is Bloomberg legal reporter Bob van Voris, who's covering the trial. Okay, so tell us about him. Who is he? H?
Nashat saying is the former director of engineering at FTX. He's somebody who was a close friend of SBF's younger brother Gabriel and worked initially for Elmet Research and then came over to FTX. Obviously he was a tech person, and he was somebody who admitted to crimes for conspiring with Ellison, Garry Wang and Sam Bankman Freed into frauding investors and customers.
What was the most important part of his testimony.
Well, certainly the most dramatic part was at the end when he was talking about the slide of FTX and Alameda into bankruptcy and everything was blown up, and there were all kinds of crazy accusations. He testified, and at the end he said the accusation that he was getting for helping to blow up the firm had him suicidal in the final days in the early part of November
twenty two. He claims he only knew about the fraud beginning around September of twenty two, and that he wanted Sambakmin Freed to step up and take responsibility for all of this.
What did he admit to that he had done was he part of the redesign of the computer code.
Was a part of basically designing a lot of the code that allowed Sambankman Freed to allegedly shift money from Alameda Research over to f PX and to steal the money. But as I say, he didn't understand that there was a multi billion dollar hole in FTX customer accounts until September twenty two. According to his testimony, he admitted also being used as a straw donor for lots of political donations.
He told jurors about how he was given blank checks to sign and that those would go to Gabriel Bankman Freed, who was the head of a pack that Sam Bankman Free donated to. The money would go to various Democratic candidates. And that's saying it acted basically as a donor to lots of center left causes. That he really for the most part, had no idea.
Let me understand this did. He claim that he didn't know that anything was wrong until the end.
He claimed he didn't know about the big hole in the FTX customer account until the end. Until you know the massive fraud. There were certainly crimes that he admits being a part of before then, but that he didn't know about the big hole in the FTX account until September.
He felt embarrassed and ashamed at the investment FTX made in a firm K five that had ties to many celebrities. Say he was embarrassed and ashamed about the rest of his.
Actions, certainly at the end. He described a lot of the things that were going on it's dishonest, and that he tried to sidestep some of them, not to be involved in some of the decisions. He considered quitting many times, he said, but didn't want to be responsible for helping to hasten the final blow up of the firm. He wanted to stay, he said, and hopefully figure out a solution. As that became more and more remote, he became just more and more despondent.
I understand that Judge Kaplan was pretty active, asking him questions about things like venture investing, blockchain, algorithmic failure.
Well, same spoke very precisely, but often in a very technical manner and used a lot of terms that the judge I think was afraid we're going to go over Dror's head. Prosecutor Nicholas Ruse here really wasn't, you know, setting it up in a way that you know, some
of these things were explainable. Judge Kaplan, Lewis Kaplan was, before he was appointed the bench, was a litigator for many years, so he kind of knows how Jerry's work and I think sense that some of these terms were going over their heads, and so he was jumping in quite a bit to ask questions of saying directly and just ask him to explain, you know, what he was talking about.
Did they come across as believable contrite?
I think certainly he came across as both. And I think you know, he kind of is in a similar sense to Caroline Ellison and Gary Wang, the other two people who were senior executives and pleaded guilty and have cooperated with the government. These are very brilliant young people who are very good at expressing themselves. They were pretty good on the stand, and certainly Ellison and Wang were able to get through cross examination without too many dents.
We'll see how Sing does tomorrow, but these are kind of the big three witnesses against the guy, and the defense is certainly going to look to score some points.
Sam begman Fried's lawyers have brought up the possibility of him testifying in his own defense.
Well, they discussed it in the letter last night. Sam Begminfried has been having a problem all along that they've been raising with a judge about getting his adderall prescription. He gets the prescription for depression and for ADHD. His lawyers claim that he's not able to concentrate and to focus to the extent that he needs to, and that if he's not able to sort of work this out, that it's going to be a problem with him being
able to meaningfully participate in his defense. And of course, you know that's what he needs to do to have a fair trial. So this is some serious that they're raising. In a letter late last night to the judge, they raised this and they said, you know that this is a critical time because we're deciding whether or not Bekmin Freed is going to get on the stand and testify in his own defense.
I know they brought this up before, and it's surprising to me that if someone's on medication, you know, they can't get the medication that they're on because they're in prison during their trial. It seems sort of ridiculous.
It certainly does. And the judge said, well, look, I'm not a doctor. I can't prescribe him medication, and that he only has limited control over the Bureau of Prison, whose doctors are the ones who make decisions. For Bekman freed while he's confined at the MDC in Brooklyn, the federal lock up in Brooklyn, as people probably know, Kaplan ordered them locked up in August after he violated the
terms of his bail at the time. So this has been a problem that just keeps popping up, including well into the trial.
I understand that during cross examination of Ellison, the defense wasn't able to ask a lot of questions because, you know, there were objections that were almost always sustained as to form, et cetera, et cetera. Did you see that too.
There were definitely a lot of objections that were sustained, and the judge had put a number of issues, you know, out of reach for the defense, including things like whether he was acting on the advice of lawyers. You know, anytime the defense tried to get near any of these issues, there would be an objection. Often there'd be discussion of
at the bench. Lawyers tell me, this is the kind of thing that really just screws up your rhythm, you know, when you're trying to get into a groove and cross examination.
And I know that pre trial Caplan made several important rulings that were detrimental to bankman freed.
You know, if he's convicted, we're going to see this on appeal. Judge Kaplan is definitely a judge who wants to move things along. He also, you know, can be a little cranky with trial counsel if they're not behaving in the way he wants them to.
Seeing testified that he was a millionaire during his time at Alameda, Is he still a millionaire?
Most of this money just slipped through, you know, just vanished into thin air. There's not much left for these people. They certainly sing is no longer a billionaire.
So how much is left In the prosecution's case.
The government is saying that they're going to basically wrap up their case. Oh really by the end of the week, with maybe a couple of people who have travel issues that they're going to have to put over till next week. So you know, this is going to move pretty fast for the end.
So then we'll soon know if bankmin Freed is actually going to take the stand. And we'll check back with you tomorrow, Bob to see how the cross examination of sing when. Thanks so much. That's Bloomberg Legal reporter Bob van voris coming up next. A top bankruptcy judge resigns amid ethics charges. President Joe Biden has confirmed thirty six judges to the federal appellate courts and one hundred and
eight judges to the district courts. But you can expect to slow down in the confirmation process in twenty twenty four, a presidential year, and there's also the prospect of Democrats losing the Senate. Joining me is judiciary expert Carl Tobias, a professor at the University of Richmond Law School. Start with the Biden numbers. How are his numbers at this point compared to other presidents.
Well, I think they're still pretty solid compared to many other presidents, especially recent ones. I think he doesn't have quite as many confirmations as Trump did at this point in his presidency, but he's not very far behind, and there are a number of nominees on the floor who could be confirmed before Thanksgiving, for example, and so I think he may well catch Trump by the end of the year. Though there need to be more nominees forthcoming from the White House.
So is that what's holding it up? The White House is not nominated them fast enough.
Well, it could nominate them faster. Chair Durbin of the Judiciary Committee promised to hold hearings every two weeks that the Senate was in session, but that hasn't happened every two weeks this year, and so that's unfortunate, and I
think that could be remedied. But there are problems because a number of the present vacancies are in states with one or two Republican senators, and especially in the district courts where most of the vacancies are, they have the blueslip privilege and they can reject White House nominees, and
so that's a more difficult vacancy to fill. Where you have one or two home state senators who are GOP members and perhaps unwilling to work with the White House, though a number have been, for example in Indiana and in other states.
I mean, once twenty twenty four arrives, it's going to be slowed down, right, the process.
To some extent, Yes, because of a presidential election year, and both parties believe that their nominees will win, and so they don't want to confirm. Well, at least the Republicans won't want to confirm any more Biden nominees than
they have to. But I think that Democrats are committed to confirming as many as possible and will schedule as many hearings and committee votes and floor votes as they can, even in a lame duck session, as Trump did in twenty twenty where he confirmed thirteen district and one circuit judge after the election. And so I think that's what
you're likely to see. So it may not slow down that much, but there'll be times, you know, for example August recess and then campaigning in the fall, where it'll be difficult for the Senate to be in session.
Let's turn out to some judges who are making news or in trouble, whichever way you want to look at it. So we talked about Judge Pauline Newman, who was the oldest judge in the country and she was suspended from new assignments for one year or until she complies with orders to submit to medical testing. She was doing an interview and she said, I have an open invitation from one circuitcause she didn't say which circuit or when that invitation came, to preside over a patent trial at the
district court level. Since she suspended from new assignments on the federal circuit, is she allowed to just hear a case at the district court level.
I don't know the precise answer to that. My guess is she probably can't. And often judges do entertain those kinds of invitations when they have them. Circuit judges may do that occasionally have a better sense of what the cases look like at the district level if they're competent to try them, and she certainly has the expertise in the patent area. I don't know that she's tried a lot of cases at the trial court level, probably not very many, but often you see that happening with appellet judges,
so we'll see. I don't know maybe it's Delaware, which has a lot of patent cases.
Yeah. No, I was just wondering because she was suspended at the Federal Circuit, and does that mean she's suspended everywhere because she's a federal Circuit judge.
I don't know the answer to that, Okay. I think that probably she could sit in some other court, but not in the federal Circuit.
Moving on to Texas, one of the nation's top bankruptcy judges who's at the center of an ethics storm, said yesterday he's resigning after the Fifth Circuit issued a formal misconduct complaint against him. David Jones was the chief bankruptcy judge for the Southern District of Texas, and he's come under fire for failing to disclose that his living girlfriend was a bankruptcy attorney at a prominent Texas law firm with business before his court. What ethics rules are involved here?
I think the Ethics Code twenty eight USC. Four fifty five is clear as to that kind of situation. If you have a conflict in terms of financial benefit that may flow when a judge is ruling, then the judge
is supposed to recuse in that case. And this sounds like that because at least the media reports are saying that he decided cases where the person with whom he shared a home was involved or her firm was involved, and probably he should have accused then and has chosen to resign, which is probably the best thing that could happen right now.
Yeah, he had previously defended his conduct to the Wall Street Journal by arguing that he and the attorney were not married, he had no economic interest from her cases, and he said he would only have to accuse himself if they had been married and had communal property and she never personally appeared in his courtroom. Isn't there the appearance of impropriety? Or are the strict rules on this on having a relationship with an attorney?
No, I think you're correct. I mean basically that four fifty five talks about the appearance of a conflict, and that's enough, And there seems to be enough of a financial interest there in her former firm when she was responsible for some cases that it would look like the appearance of a conflict, and so probably should have recused himself in any of those cases.
And this judge has issued rulings in multi billion dollar reorganizations, and some legal experts say that both he and his girlfriend face the possibility of disbarment and criminal charges. So we'll see whether the resignation is the end of this or if there's more to come. Thanks so much, Carl. That's Professor Carl Tobias of the University of Richmond Law School. Coming up next. A black high school student in Texas sues after being suspended over his hairstyle. I'm June Grasso,
and you're listening to Bloomberg. After serving more than a month of in school suspension over his hairstyle, a black student in Texas was told he'll be removed from his high school and sent to a disciplinary alternative education program. Eighteen year old Darryl george, a junior at Barber's Hill
High School, has been suspended since August thirty first. Last month, his family filed a formal complaint with the Texas Education Agency and a federal civil rights lawsuit against the state's governor and attorney General, alleging they fail to enforce a new law outlying discrimination based on hair styles. The family alleges Georgea's suspension and subsequent discipline violate the state's Crown Act. Joining me is Melanie Jordan, a labor and employment attorney
at Dorsey and Whitney. So, first of all, tell us about the Crown Act that was signed into law in Texas in May.
That's right. So the Crown Act actually sits an acronym and it means creating a respectful and open world for natural hair. Now, this law prohibits discrimination based on race based hair styles such as twist, lacks, braves, et cetera. And so what the Crown Act does is extends statutory protection to hair texture and protective styles. And it does so in the workplace and in public schools.
How many states have this law.
So the Crown Act is currently law in more than forty localities cities like New Orleans, and in twenty four states, which includes Texas. Texas. Actually this law went into effect in September. September. First, you know the Crown Act. It's the brainchild of a coalition led by Dove, you know, the maker of soap shampoos. Dove partnered with several organizations such as Western Center on Law and Poverty in the
National Urban League. And what this coalition did was they undertook a study and they only corroborated what's been experienced by generations of black and brown people, and especially black women, and that is that a fairly large percentage, over twenty percent of Black women aged twenty five to thirty four
were sent home from work because of their hair. And I would even go as far as to say that, you know, as every black woman in the workplace knows, this is impactful because it's something that we've dealt with for honestly our whole entire life.
Has there been a lot of litigation around the Crown Act in different states or localities.
You know, a lot of these laws are new, right, they're passing on on a monthly basis, and so the first one in California that was passed in twenty nineteen, and we saw some litigation arising from that. There was a case that I think the first one in California was in twenty twenty one, as it relates to an out of state's job applicant who is intending to move to California and take a job, but he was informed, you know, allegedly that he needed to cut his hair. Right.
And so as these laws take shape and they're being an act, it will see some litigation coming from them.
So tell us what happened to this Texas high school student Darryl George in Barber's.
Hill Independent School District or ISIC. We have a student, Darryl George. Darryl George, I think he was seventeen and now he's eighteen. He attends their high school and he wears his hair in locks. I know some people call it dreadlocks, but that's actually become more of a pejeorative term. So he wears his hair and twisted locks, and he typically ties it back with a headband and twisted away from his face in order to comply with barbars Hill's
dress and group policy. Now, this policy only applies to male students, and it mandates that male students cannot wear their hair at any time below their eyebrows, or below their earlobes, or below the top of their T shirt collared or it has to be gathered or worn up in a style so that it stays above the eyebrows, the T shirt collar, or the ear lobes. And so obviously when you're wearing locks, they're growing and growing long, which is usually the intention. And so Darryl was wearing
his hair or his locks and they became long. So he was suspended not once, but twice just this school year alone. He was suspended in August for wearing the twisted locks. Then when he returned to school, he was suspended immediately again September eighteenth, and now as recently as October twelfth, the school placed him in a disciplinary alternative education program and he's apparently going to be in this
program through at least the end of November. And so the school district, they're contending that these disciplinary actions are fine essentially, and they argue that Darryl has violated many campus and classroom rules. For example, they alleged that he's disrupted the iss classroom in school suspension classroom. They contend that he's failed to comply with directives from their staff. He's been tardy, and he's violated the dress and ruling policy.
And so now we're faced with the situation where the school district is administering the same hair and ruling policy against the same hairstyle for an issue that they faced, I guess just three years ago at this point, with other black students wearing dreadlocks as well or locks as well.
And I believe in twenty twenty, a federal judge rule that the district's hair policy was discriminatory as far as the school's rules, does George's hair comply with those rules, you know above the collar, et cetera.
So, no, his hair is quite long, and he wears it tied back, but his hair does extend past, of course his t shirt collars. He has very long dread locks, and his family contends that this is an expression of his culture, of his racial heritage. Many of the male family members also have worn their hair in locks, and so the family now has recently brought a lawsuit contending that this hair and growing policy is violated not only the Crown Act, but the plessora of other state and federal.
Laws as well.
So I take it the school district is going to come back or has come back and said that this applies to all male students.
That's right. So the school district, they're contending that this policy is defensible because it applies to all male students and has nothing to do with their race or your hair style, but simply length. And this is the same argument that they advanced back in twenty twenty when they were food by two other black male students who were
wearing their hair and loss as well. And in that case it's still ongoing, but the court did issue a preliminary injunction against Barber still is sc which allowed those students at least one student because the other graduated, but one student to return to the classroom and to participate in extracurricular activities. And that case is still ongoing. But I think it would have been instructive at least in this circumstance for barbers Hill ISD in terms of maybe
taking a step back and reevaluating its policy. But as of now, it's advancing the same argument that it's not about the race, it's not about the hairstyle, it's about the lane. And you know this argument, I guess others have contended that it kind of exploits the loophole within the Crown Act.
Do you think this win? Then if it's using a loophole in the Act itself, you.
Know, it's hard to say. The Crown Act at least in Texas and amended the Texas Labor Code in Texas Education Code and the Education Code was amended and when it was amended, it lists specific hair styles, but it is silent on length and when you look at even the legislative history of the Act in Texas, there's no
discussion about length as well. I don't think that the school will actually succeed, maybe as it relates to the pleasor of other claims that it could face, because, again referring back to that twenty twenty case, same school district, same hairstyle, the preliminary injunction was issued against them in part because the court looked at that record and found that there was a Native American student who wore his hair long, and the school was able to make an
exception for him and allowed him to wear his hair passed the policy's mandated length. And so now when faced with that same question about lanes here, I don't think the school will succeed again on the record that was established before.
Explain why it's so important for him to have his hair long if he can have the locks but shorter or tied up.
Well, this is a great question because it speaks to the point of black culture and heritage. Right when you're wearing dreadlock or wearing locks, it's not just about the actual locking of the hair, but the locks are intended generally to grow long and you don't necessarily cut your locks to make them short, because then you would unravel and essentially undo sometimes the years long process of cultivating
the locking process. And you know, when you're wearing your hair and locks, it's long been regarded as an expression of black heritage, of African American heritage, of West Indian
identity as well. And so when it's an expression of your racial identity and it's been routinely associated with, you know, black and brown people, it's important to note that it's not just about the locks itself, but length should be included in that assessment because the length of the locks demonstrates how long you've been invested in wearing that hair.
Are they now enforcing this for all male students. I know you mentioned before they had made an exception for a Native American student.
So the argument has been that they have not enforced it equally across the board. There's been selective enforcement. In fact, the policy has been amended numerous times my understanding and barbershel isd to make it more narrowly drawn so that it clearly is targeting those students who are wearing their hair in a protective hairstyle like locks. So, for example, it used to be just you know, it couldn't be a certain length, and now they're saying, well, you can't
circumvent the policy by simply tying your hair back. We're saying you can't have it at length at all. But then you look around and you're saying, Okay, this policy is not being enforced against those of white male students, for example, who are wearing their hair longer than their T shirt collar. And yet you had students such as dear old mister George the other plaintiffs in the twenty twenty case, they were being heavily disciplined for wearing their hair longer than what the policy permitted.
Unequal enforcement seems like a good argument. Do you give us some context? Is this school in a conservative area of Texas?
Yes, so this school district is in Mount Belvioe, Texas, the southern part of Texas, and of course you know Texas in general has a very conservative culture. And so it's interesting that you raise that as a question because I understanding the superintendent has argued that this is the same policy that we've had for the last thirty years. Nothing was wrong with it then, nothing's wrong with it now.
But I think that's the issue that they're going to face is the policy hasn't been changed in thirty years, and it's only enforced against male students, and it narrowly targets those hairstyles that disproportionately impact your black and brown students. Maybe it is time for it to be revised.
Well, certainly this case is getting a lot of attention, so there may be changes ahead, either voluntary or perhaps court ordered. Thanks so much for being on the show. That's Melanie Jordan, a labor and employment attorney at Dorsey and Whitney. 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