Crypto regulation does not matter in some SBF trial allegations, DOJ says

The government also pushed back against SBF’s argument it was “common” for crypto companies to misappropriate funds


Artwork by Crystal Le


The trial is barely underway, and yet the US government and Sam Bankman-Fried’s legal team continue to file letter after letter in an unending back and forth.

Essentially, both the US government and Sam Bankman-Fried’s team are working to iron out what arguments may or may not be used in front of the jury once the selection has been finalized.

Even Judge Lewis Kaplan, who is overseeing the case, asked both the prosecution and defense if he should expect “another midnight filing” before he adjourned court on Tuesday. 

Read more: SBF trial kicks off day two with opening arguments: Live updates

In the prosecution’s most recent letter, the US government’s lawyers pushed back against arguments from Sam Bankman-Fried’s legal team. They disputed that the regulatory status of crypto in the US is relevant because the government alleged that SBF misappropriated FTX funds.

“The Government has not alleged that there are any laws or regulations prohibiting cryptocurrency exchanges from using funds originating in customer deposits for their own purposes — as is commonly done by financial institutions such as banks and digital payment platforms — or providing any relevant guidance as to what may be done with customer deposits,” Bankman-Fried’s team argued in a letter Monday.

Read More: SBF was never offered a plea deal, prosecutors say amid jury selection

The prosecution, however, pushed back against the arguments, saying that the “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.”

The lack of regulation “is of vanishingly little probative value as to a good-faith defense or for any other purpose but is likely to be misleading and unfairly prejudicial,” lawyers for the US government said.

“Where a defendant violates the wire fraud statute by misappropriating assets entrusted to him, it is of no probative value that there was not also an express regulatory prohibition on the particular manner in which he accomplished the fraud.”

Additionally, SBF or his team arguing that pooling or reallocating customer funds was “common among cryptocurrency exchanges” is not relevant to the government’s argument because it’s not focused on whether or not everyone was doing it, but instead that SBF allegedly misappropriated the assets.

Read more: New indictment alleges Sam Bankman-Fried gave more than $100M to politicians

One last point that the defense and prosecution have gone back and forth on is arguments centered on campaign finance contributions. The defense accused the court of “inconsistent rulings” on the argument because it blocked a witness, Professor Bradley Smith, from testifying for the defense. According to previous court documents, Smith’s planned testimony was centered on straw donor contributions.

Don’t miss a moment of SBF’s time in court. Stay up to date with all trial coverage from Blockworks.

A straw donor is a term to describe when a person uses another person’s name to get around political campaign contribution limits.

The government argued that it plans to “present evidence at trial that the defendant routed misappropriated customer funds to political campaigns through nominees or straw donors, the Government will not elicit evidence that such a straw donor scheme is itself unlawful under the election laws.”

Don’t miss the next big story – join our free daily newsletter.


Upcoming Events

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

MON - WED, MARCH 18 - 20, 2024

Crypto’s premier institutional conference returns to London in March 2024. The DAS: London Experience:  Attend expert-led panel discussions and fireside chats  Hear the latest developments regarding the crypto and digital asset regulatory environment directly from policymakers and experts   Grow your network […]

recent research

Pyth Cover.jpg


Pyth is a low latency pull-based oracle. In a future that looks increasingly high frequency, with various alt L1s and L2s that have significantly shorter block times than Ethereum, and an explosion of “high-frequency” protocols such as oracle or CLOB perp DEXs, Pyth’s low latency oracle product looks much better positioned to capture a significant amount of market share in comparison to competitors.


The DOJ made the plea agreements of Binance and Changpeng Zhao public on Tuesday


Binance settlement “an important part of clearing the way for the next bull market cycle,” crypto hedge fund executive says


Hester Peirce reiterated Tuesday that court cases are not the only path to regulatory clarity for crypto, but her colleagues do not always agree


The indictment followed leaks Monday that a Binance settlement deal was forthcoming


The Binance executive is also reportedly set to make an appearance in a Seattle courtroom Tuesday


Monday developments reaffirmed the US as unfriendly to crypto while also offering a potential bullish outlook for segment firms, industry watchers say