On August 31, U.S. District Judge Lewis Kaplan denied a motion by SBF’s attorneys to preclude the Department of Justice (DOJ) from introducing evidence the government delivered to the defense after July 1. SBF’s team has been loudly complaining that prosecutors dumped “4 million pages” of evidence into their laps just last week while the trial is set to start on October 3.
The documents are stored with Google (NASDAQ: GOOGL), and prosecutors claimed that the delay in handing them to the defense was because Google slow-rolled the government’s subpoena. In rejecting the defense request, Kaplan noted that most of these documents were stored in SBF’s personal Google account, to which he had access until his bail was revoked.
SBF was charged with fraud and money laundering following FTX’s demise and had been under house arrest at his parents’ California home following his extradition from the Bahamas last December. On August 11, he was shipped off to New York’s Metropolitan Detention Center (MDC) after Kaplan had enough of SBF flaunting his bail conditions.
On August 30, Kaplan held a hearing to discuss multiple defense motions, which included arguments that the MDC-provided crappy laptop and crappy WiFi meant SBF lacked sufficient access to Google to prepare his defense.
As documented by Inner City Press, Kaplan called the defense claims regarding the document dump “seriously exaggerated.” Nonetheless, Kaplan said he’d entertain a defense request to postpone SBF’s October 3 trial date, although he cautioned that this was no guarantee he’d grant such a request.
SBF’s attorneys continued to argue about how unfair the whole situation was, prompting Kaplan to ask if they were looking for a postponement. Despite their bleating, SBF’s team responded ‘not at this time.’ Kaplan warned that September 7 was his deadline to request a jury, so if a postponement was desired, SBF’s team needed to ask for it by the end of the week.
Kaplan also asked both sides to submit a joint proposal regarding the WiFi/laptop situation by the close of business on Friday, September 1, and he’d consider their arguments over the weekend. That said, Kaplan clearly isn’t overly sympathetic to SBF’s whinging. When SBF’s attorneys complained that the prison laptop battery was unreliable, Kaplan quipped, “get a cord.”
SBF’s infantile attitude was on full display in an August 30 filing that sought to return him to house arrest at his parents’ home in California, albeit “subject to severe constraints.” MDC’s unreliable internet access was sufficiently upsetting for SBF to refuse to meet with his attorneys, which kind of undercuts the argument his attorneys made to Kaplan regarding the huge document-reading task facing them.
Deltec enters the chat
Kaplan has yet to rule on several other motions by SBF’s team to prohibit evidence containing details on the bankruptcy of the FTX digital asset exchange, the solvency of FTX and its affiliated market-maker Alameda Research, SBF’s resignation as FTX boss, and statements about FTX’s U.S.-licensed offshoot FTX.US.
Late Friday, prosecutors filed a motion insisting that the FTX bankruptcy subject was appropriate “to complete the story of the criminal conspiracy and to show the defendant’s criminal intent.” This includes testimony by former Alameda CEO Caroline Ellison, who will testify that, following the bankruptcy filing, SBF “requested that she assist him in moving FTX assets to the control of Bahamian authorities, which she refused.”
FTX co-founder Zixiao ‘Gary’ Wang will apparently testify that he helped SBF move FTX assets “at least in part to induce Bahamian authorities to treat him more favorably.” SBF also instructed Wang “to stall the FTX Debtors seeking to recover assets on behalf of the U.S. bankruptcy.”
Interestingly, SBF’s team filed a motion on Friday protesting the government’s in limine motions. The filing was supported by a Signal message from November 9 in which SBF claims Ellison “is blocked from Deltec—she should not be blocked.” Deltec is the controversial Bahamian bank whose customer list includes FTX, Alameda, and the Tether (USDT) stablecoin.
SBF: I wuz Robbed
Besides SBF’s obvious discomfort at his incarceration—he recently complained that MDC’s lack of a vegan menu has left him surviving on bread, water, and peanut butter—FTX’s former customers haven’t had much to cheer about since their funds were locked up last November.
But Friday brought word that online brokerage Robinhood Markets (NASDAQ: HOOD) had reached a deal with the U.S. Marshalls Service to buy the 55.3 million Robinhood shares formerly owned by Emergent Fidelity Technologies (EFT), a company controlled by SBF and Wang.
The Share Purchase Agreement (SPA) announced Friday received court approval on August 28. Robinhood, which announced its willingness to (re)purchase the shares in February, says the deal is worth $605.7 million. That works out to just under $11 per share, based on a five-day average preceding August 13, when the parties first shook hands on a deal.
The Antigua-registered EFT, ownership of which was split 90/10 in favor of SBF, bought the Robinhood shares in May 2022 using a $546 million ‘loan’ from Alameda. The purchase gave EFT a 7.6% stake in Robinhood, and the shares were subject to a fierce tug-of-war following the FTX/Alameda bankruptcy.
SBF insisted that the ‘loan’ wasn’t made with FTX customer cash—except it was—while some FTX creditors wanted to make up their losses by staking a claim to the shares. These included BlockFi, the bankrupt digital asset lender, which had entered into a ‘pledge agreement’ with EFT to cover a $671 million loan BlockFi made to Alameda shortly before SBF’s house of cards collapsed.
FTX creditor Yonatan Ben Shimon also briefly convinced an Antiguan court to issue an injunction freezing EFT’s assets. But the DoJ seized the shares in January, and Friday’s court order stated that the Robinhood shares “shall transfer free and clear of any claims, interests, liens, and encumbrances.”
The death star in this here Galaxy
Assuming there are no hiccups with the SPA, the net proceeds of Friday’s sale will be deposited in the Seized Asset Deposit Fund. But whether it will end up benefiting FTX’s long-suffering customers is anyone’s guess.
FTX Debtors, the court-appointed overseer of what’s left of SBF’s business ventures, raised eyebrows earlier this year when it released an update on what it was paying in fees to the legal, financial, and other advisors aiding the convoluted process.
In February, the bill topped $20 million. By mid-June, seven months into this process, that number had swelled to $200 million. A bankruptcy court hearing last month revealed that these charges were now increasing at the rate of $1.5 million per day.
FTX Debtors claims it has recovered $3.4 billion in various digital assets of varying liquidity. Having previously stated that it wants to convert those tokens into cash before distributing what’s left to creditors, FTX Debtors wants to hire Mike Novogratz’s Galaxy Digital to assist with this conversion.
The plan is for Galaxy to sell off the assets currently under FTX Debtors’ control “over time.” The proposed schedule calls for no more than $100 million worth of asset sales per week, although the court could double that sum if the circumstances warrant.
But before those sales can commence, FTX Debtors wants to lend FTX customers’ BTC and ETH tokens to Galaxy for staking and hedging purposes. The idea is “to lessen the debtors’ exposure to adverse price movements” while the sales are ongoing.
In exchange, Galaxy would be paid a monthly management fee, reimbursements for expenses, plus commissions, interest, and custodial and brokerage fees. The irony here is high, given Novogratz’s public cheerleading on behalf of Terraform Labs, whose early 2022 collapse market the onset of ‘crypto winter’ and ultimately contributed to FTX’s demise.
Finally, further proof that fate loves kicking you when you’re down. Kroll Restructuring Administration, the claims agent in the FTX bankruptcy process, announced last month that there’d been a “security incident involving the personal information of bankruptcy claimants in three matters involving cryptocurrency companies.” In addition to FTX, data belonging to customers of BlockFi and Digital Currency Group’s digital asset lender Genesis were compromised.
The incident, which involved a ‘SIM swap’ attack targeting a Kroll staffer, occurred on August 19. Kroll claimed to have done what it could to secure the accounts and alert the affected customers, as well as notifying the FBI. Nevertheless, Kroll warned customers that their names, addresses, phone numbers, email addresses, FTX account numbers/balances, and “unique identifiers assigned as part of the bankruptcy process” may now be in the hands of scammers.
Kroll warned FTX customers to “remain on high alert for attempted fraud and scam emails impersonating parties in the bankruptcy.” Kroll further suggested that you “should never link your wallet, share passwords, seed phrases, private keys, or other non-public information, or download any software or use a particular wallet application from untrusted individuals, applications, websites, or devices.”
Nor, for that matter, should you trust anyone in ‘crypto’ ever again.
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