United States v. Bankman-Fried

680 F.Supp.3d 289

UNITED STATES of America, v. Samuel BANKMAN-FRIED, Defendant.

22-cr-0673 (LAK)

United States District Court, S.D. New York

Signed June 27, 2023

Danielle R. Sassoon, Samuel Raymond, Thane Rehn, Nicolas Roos, Danielle Marie Kudla, Assistant United States Attorneys, Jil Simon, Trial Attorney, Damian Williams, United States Attorney

Mark Stewart Cohen, Christian R. Everdell, S. Gale Dick, Sri K. Kuehnlenz, Cohen & Gresser LLP, Attorneys for Defendant

MEMORANDUM OPINION

Lewis A. Kaplan, District Judge.

Defendant Samuel Bankman-Fried is charged in a thirteen-count superseding indictment with perpetrating an alleged multi-billion-dollar fraud relating to his operation of cryptocurrency companies that he founded and controlled.¹ The matter is before the Court on the defendant's pretrial motions to dismiss or, in the alternative, to sever certain counts, as well as for additional discovery, a bill of particulars, and pretrial disclosures. (Dkt 136) For the reasons that follow, the defendant's motions are denied.

Background

I. Facts

In evaluating a motion to dismiss, the Court "accept[s] as true all of the allegations of the indictment."² The following facts are drawn from the superseding indictment filed March 28, 2023 (the "S5 Indictment").

In November 2017, the defendant founded Alameda Research ("Alameda"), a quantitative cryptocurrency trading firm incorporated in Delaware, which had operations in the United States, Hong Kong, and The Bahamas.³ He served as CEO of Alameda from its founding until October 2021, at which time he passed the title to two Alameda employees but remained Alameda's "ultimate decisionmaker" until it filed for bankruptcy in November 2022.⁴ Throughout the relevant period, he was one of two equity owners of the company.

In May 2019, while still the CEO of Alameda, the defendant founded and installed himself as CEO of FTX.com ("FTX"), a global cryptocurrency exchange that offered customers the ability to trade in cryptocurrencies and crypto derivatives, among other crypto assets.⁵ He remained CEO of FTX until the company filed for bankruptcy in November 2022.⁶

From 2019 until 2022, both Alameda and FTX grew exponentially and with them grew the defendant's public profile, political influence, and personal fortune.⁷ By 2020, FTX already had become one of the largest digital asset exchanges in the world and Alameda accounted for "roughly 5% of global volume" in digital asset trading.⁸ By 2022, FTX claimed to handle approximately $15 billion in daily trading volume on its platforms.⁹ As the two companies evolved so too did their relationship with one another, with FTX describing Alameda as the "largest liquidity provider and market maker" in the digital asset space.¹⁰

The defendant promoted his companies as "trustworthy and law-abiding" and assured the public that the relationship between FTX and Alameda was entirely above board.¹¹ As early as July 2019, two months after FTX was founded, the defendant publicly stated that although Alameda was a liquidity provider on FTX, "their account [was] just like everyone else's."¹² He made similar public representations through and until November 2022, stating, for example, that "[t]here are no parties that have privileged access" on FTX, and that "Alameda is a wholly separate entity."¹³

The government claims that, in reality, the defendant "[e]xploit[ed] the trust that FTX customers placed in him and his exchange."¹⁴ Specifically, the government alleges that he "stole FTX customer deposits[ ] and used billions of dollars in stolen funds for a variety of purposes, including, among other things, to support the operations and investments of FTX and Alameda; to fund speculative venture investments; to make charitable contributions; and to enrich himself."¹⁵ Moreover, the government alleges that he engaged in corrupt practices to advance his fraudulent schemes, including attempting to influence federal cryptocurrency regulation via tens of millions of dollars in illegal campaign contributions and conspiring to bribe one or more Chinese government officials.¹⁶ Ultimately, the alleged multi-billion-dollar fraud victimized FTX's customers and investors, Alameda's lenders, financial institutions, and the Federal Election Commission ("FEC").¹⁷

The defendant's crypto empire collapsed in November 2022 when an internet news organization leaked what appeared to be a copy of Alameda's balance sheet. The leaked document revealed that Alameda's solvency was dependent on a multi-billion-dollar valuation that Alameda assigned to its holdings of "FTT," FTX's proprietary digital currency, which was illiquid and difficult to value. This revelation triggered what was essentially a bank run, as FTX customers hurriedly sought to withdraw their funds from the FTX exchange.¹⁸ After several failed attempts to reassure the public and to secure sufficient liquid capital to satisfy customer withdrawals, the defendant resigned from FTX on November 11, 2022, and FTX and Alameda filed for Chapter 11 bankruptcy protection.¹⁹

II. Prior Proceedings

On December 9, 2022, the defendant was charged in the original eight-count indictment, which alleged a wide-ranging fraud on FTX's customers and investors and on Alameda's lenders. That indictment accused him of wire fraud and conspiracy to commit wire fraud against FTX's customers, wire fraud and conspiracy to commit wire fraud against Alameda's lenders, and conspiracies to commit commodities fraud, securities fraud, money laundering, and violations of the federal campaign finance laws.²⁰

On December 10, 2022, the United States provided The Bahamas with a diplomatic note, attaching an arrest warrant issued in this district for arrest of the defendant. Both the diplomatic note and the arrest warrant listed the eight counts with which the defendant had been charged in the original indictment.²¹

On December 12, 2022, the Royal Bahamas Police Force arrested the defendant on the provisional arrest warrant.²² He was detained in The Bahamas until, "having considered the charges set out in the . . . [d]iplomatic [n]ote and arrest warrant," he consented to extradition on December 20, 2022.²³ The next day, the defendant appeared in a Bahamian court to enter his consent to extradition, which the Bahamian judge accepted and ordered him detained for extradition on the counts set forth in the United States' diplomatic note.²⁴ After the court proceeding, the Bahamian Minister of Foreign Affairs executed a warrant of surrender of the defendant whereupon he was taken into U.S. custody.²⁵ The warrant of surrender listed seven of the eight charges in the original indictment, but omitted the charge for conspiracy to violate the campaign finance laws.²⁶

On December 22, 2022, the defendant was arraigned on the original indictment before Magistrate Judge Gorenstein. Since then, the government has superseded the original indictment twice with respect to the defendant, the first time on February 23, 2023 (the "S3 Indictment") and the second on March 28, 2023 (the "S5 Indictment").²⁷ The S3 Indictment added four charges to those already contained in the original eight-count indictment: a substantive commodities fraud count, a substantive securities fraud count, a bank fraud conspiracy count, and an unlicensed money transmitting conspiracy count.²⁸ The S5 Indictment added a count for conspiracy to violate the Foreign Corrupt Practices Act ("FCPA"), yielding a total of thirteen counts in the operative indictment.²⁹

On May 8, 2023, the defendant filed seven pretrial motions, set forth in Dkt 136, to dismiss Counts One through Four, Seven through Ten, and Twelve and Thirteen in the S5 Indictment, or in the alternative, to sever Counts Twelve and Thirteen, as well as for additional discovery, a bill of particulars, and pretrial disclosures.³⁰ Among the motions was one seeking dismissal of the counts added by the two superseding indictments, as well as the campaign finance charge omitted from the defendant's warrant of surrender issued in The Bahamas, on the basis of the rule of specialty, a doctrine of international law that, broadly speaking, restricts a nation that obtains a defendant by extradition from a requested state to trying the defendant only on the charges on which extradition was sought. The defendant contends that dismissal of those counts is appropriate because they were not bases upon which he was extradited from The Bahamas. The motions are fully briefed.³¹

In his reply brief, the defendant for the first time sought an alternative remedy for the alleged rule of speciality violations: severance of the post-extradition charges as well as the campaign finance charge.³² By letter dated June 14, 2023, the government consented to discretionary severance of the post-extradition charges, but not the campaign finance charge, under Federal Rule of Criminal Procedure 14.³³

On June 15, 2023, the Court heard oral argument on the motions and subsequently issued an order denying Pretrial Motion Nos. 5, 6, and 7 and severing the post-extradition charges - Counts Four, Six, Nine, Ten, and Thirteen of the S5 Indictment. For the reasons set forth below, the defendant's remaining pretrial motions are denied either as moot or on the merits.

Discussion

I. Rule of Specialty

The defendant moves to dismiss the post-extradition charges (Counts Four, Six, Nine, Ten, and Thirteen) and the campaign finance charge (Count Twelve, and collectively, the "At-Issue Charges") because they allegedly were charged in a manner that violates the "rule of specialty" codified in Article 14 of the "Extradition Treaty between the Government of the Commonwealth of The Bahamas and the Government of The United States of America," signed March 9, 1990 (the "Extradition Treaty").³⁴ In the alternative, he moves to sever those counts pursuant to Federal Rule of Criminal Procedure 14 and for an order requiring the government to produce all diplomatic correspondence and notes relating to his extradition....