SBF Faces Tough Cross-Examination

Published Oct 31, 2023, 1:12 AM

Former federal prosecutor Michael Weinstein of Cole Schotz and Bloomberg legal reporter Ava Benny-Morrison discuss Sam Bankman-Fried’s cross-examination. Fara Sunderji, a partner at Dorsey & Whitney, discusses oral arguments coming up Wednesday before the Supreme Court over trademarking “Trump Too Small.” June Grasso hosts.

This is Bloomberg Law with June Brusso from Bloomberg Radio. Sam bankman Fried has taken a big gamble, taking a stand in his own defense to try to convince stures that he didn't orchestrate one of the biggest frauds of all time. During direct examination, the thirty one year old painted himself as a disengaged CEO who didn't code, didn't oversee Alameda research, or do little more than skim the firm's terms of service. Prosecutors say that he directed the transfer of FTX customer money into Alameda for investments, political donations, and expensive real estate before both companies filed for bankruptcy, and on cross examination, the prosecutor confronted him with many of his public and private statements that contrasted with his story about his role in the collapse of FTX. Joining me is Bloomberg Legal reporter Ava Benny Morrison, who covering the trial. How did he seem today? During the direct part of his testimony.

He seems to relaxed. He was using very simple explanations to go through the final days at FTX, the relationship between FTX and Alameda. He'd got a warning from the judge earlier that he shouldn't use sort of vague generalities to explain his version of events. It wouldn't go well with the jury. So it seems like he took that on board. So he seemed to pre relax when he was giving answers. He was talking directly to the jury, and he seemed pretty comfortable that demeanors seemed to change a little bit under cross examination.

Did the prosecutor come at him right out of the gate?

She did, And she went through dozens of comments he had made before and just after FTX collapsed, comments on Twitter, comments during press interviews before Congress, even in internal flack messages with other FTX executives, and she asked him, did you say this? Did you say words to this effect? And at some point contrasted it with other comments he had made, so trying to show the Jewy that there may beholds in the versions of events that he has provided so far. He seemed to be a little bit combative and a little bit vague. He repeated again and again, I'm not sure. I can't recall or he would quibble with the exact wording or the nuance of a comment in a Financial Times article, or a New York Times article or even a Bloomberg article. So it was painstaking at times because she would ask him if he said something, then he would dispute it, and then she would pull up the article and then put it to him again, and then he would say, oh, I don't recall I don't necessarily agree with that context.

So what was the main thrust of her questions? What areas was she trying to get into or disprove From.

The get go, she definitely used his words against him, really seizing on public statements he had made about what the problems were at FTX and his reaction to it. She also tried to shape him as a good storyteller who was tailoring his testimony after months of reviewing the government's evidence against him, also suggesting that he was tailoring his earlier media interviews to serve human to serve his case under directed domination. He was asked why did you go on this so called apology press tour after FTX collapsed, and he said he felt like it was the right thing to do, and he felt like he had to explain himself to the world.

You call the shots as CEO, the prosecutor asked, I call some of them. He said, you think of yourself as a smart guy in many ways, not always. He said, you thought highly of yourself, and he said I did. You can see what it's like reading it. What was that like in the courtroom? Did it seem very antagonistic?

Not really? Well, most of her coffee nomination was focused on his public statements and pointing out any holes in everything that he has said since FTX collapsed. She seemed to thread through some characterizations of him, you know, asking if he thought he was a good storyteller, if he was a CEO who called all the shops, and if he thought he was smart. He didn't seem to be personally affronted by that or offended at all. He was very dead tam when he was replying. In many ways, yes he thought he was smart. In other ways he didn't. Yes, he did think he was a good CEO. So it was interesting to get those little characterizations into his testimony.

Where was she able to, you know, crack some holes in his testimony?

So she scored a couple of concessions, namely that bankman Freed made the decision on a number of very costly venture investments, at Alameda. She was really trying to hone in on how involved he was with Alameda day to day previously, to distance himself from it publicly and in this trial as well. He definitely did that during direct examination, trying to put himself at armslan from other corporating witnesses, including Mishad Sing and Gary Wong, who will remember changed fdx's code to give Alameda special privileges on the exchange. He also sought to downplay Alameda's ten million liability to FTX, saying at the time, yes, it warranted further analysis, but if it was more, he would have been in christis no, but he wasn't at the time. So during cross examination, Sasson really tried to challenge that arm's length characterization that he had provided, and she did get a couple of wins there.

How much did he blame Caroline Allison or one of the other two main witnesses for what.

Happened, It was very subtle, to be honest. Today, he mentioned a meeting that he had with Caroline in twenty twenty two and he had discussed the need for Alim to hedge to protect against market volatility. At the time. He said that when he brought this up to her, she didn't do it initially, and then he brought it up again during this meeting and she started crying and then offer to resign. So he didn't explicitly say this was her fold and she's the one to blame, but that was the tone of what he was saying as well. With Mischad and Gary, he mentioned during his dress examination that yes, he directed them to change the code, but he was not a software developer or a coder, and he wasn't fully all over exactly what they were doing, and he trusted them to do the work.

There seemed to be a lot about backdating of documents. Did he do a lot of backdating?

Allegedly they asked him about a document that he had signed apparently a year after it came into effects, and so Food asked him was this something that he did regularly, which he denied. We've heard earlier in the trial that these documents were backdated and quite frequently. This sort of ties into bateman free defense that he was relying on the presence and the advice and the guidance of lawyers within FTX and outside of FTX as well on matters like this.

I mean, would you say he held up well.

During cross bankman Fred didn't seem to lose his call during cross examination, but the sheer volume of his public statements was quite compelling just to hear Sassoon lay them out one by one, asking him firstly, did you say this? And then he would approval with it, or say he didn't remember, or sort of give some vague answer, and then she would pull it up. But the jury could see it there clear as day in writing. I think that was quite compelling.

So he's back on the stand tomorrow. Is the trial coming to.

An endswer certainly getting to the pointy end of the trial. We're expecting across the conomination to last for a couple more hours on Tuesday, and then there will probably be some redirect from Bateman Freed's attorneys, and then we may hear from some rebuttal witnesses. So we're thinking that the evidence might be all done dusted by Tuesday afternoon or Wednesday morning.

And who were there rebuttal witnesses that the prosecution is going to call.

We could hear from potentially two rebuttal witnesses. One is a FBI agent and another was a investor in FDx and what was.

The courtroom like today? Mean? Was it packed again?

The courtroom was absolutely packed. Reporters have been lining up outside the courthouse since last night to try and get one of twenty twenty three on press seats inside the courtroom. If they couldn't get a seat there, they had to go to a number of overflow rooms in other areas at the courthouse, So there was a lot of competition to get inside to get a front row seat to his testimony. Obviously, this is a major point in the trial, and the.

US Attorney was there for the Southern District.

Yes, the US Attorney Damian Williams was seated in the front row with a few other senior officials from his office. He watched mainly the cross examination of Bateman free this afternoon. He's also popped in for other important parts in the trial, the evidence of Caroline Ellison and also the opening statement.

So coming down to the wire, we'll check in with you again tomorrow, Eva to hear about the conclusion of Sam bagman Fried's testimony. That's Bloomberg Legal reporter Eva. Benny Morrison coming up next on the Bloomberg Last Show, We'll talk to former federal prosecutor Michael Weinstein about the tactics and strategy at play during SBF's testimony. I'm June Grasso, and you're listening to Bloomberg. It would seem and like this is the time for a judge to give some leeway to the defense when the defendants on the stand yes.

And I'm sure the judge did that, And I'm sure the judge gave him great latitude because the judge does not want to be seen as tipping the scales one way or the other, or have it become an appeal issue if he's too heavy handed in what he does and the way he handles the witnesses and the evidence. So I'm sure you know us seeing the judge react in that way, which was just answer yes or no, was not out of the blue. There was a build up to that. There was questions that were asked. There was probably a lot of language that the defendant used which was not really clear and concise in order to answer specifically the question. And so it got to the point that the judge felt is he had to rain him in a little bit and tell him, please answer yes or no. Obviously the judge has to also be mindful that, you know, Juri's look at the judge in somewhat of a high light. And so if a judge is being heavy handed with an attorney or heavy handed with the defendant, or calls out a defendant and acts as though he doesn't even believe him, that may influence directly or indirectly the jury. So the judge has to be mindful of that and be careful what he says, how he says it, so that he always is impartial.

So what's the defense's goal to make him likable to the jury or you know, to try to contradict some of the testimony of the three main witnesses against him. I mean, if you were the defense attorney, what would you be going there to accomplish?

To try to provide a justification for the collapse of the business and that it did not come back to the defendant and that there are other people that he entrusted to make decisions right or wrong which did not end up positively for investors. I mean, look, the bottom line here is that the defendant is trying to make the evidence out as as possible for him. It's like putting lips to k on a pig. He can only make it look that good, but in the end it's still bacon.

The defense also spent time asking him about the massive spending of FTX on the marketing, the way he dressed and his hair, which Ellison said was to create an image for himself. How important are those little things what I would call little things to the jury.

So I think in the long run, it's not going to be material to the jury, but it adds little elements to the government's case in that he was doing it not for genuine purposes, that that was his personality, but he was doing it to create an aura of himself, and they're tried to show that he had some ulterior motivation when he did these types of things, dressed in a certain way, kept his hair in a certain way, and it wasn't just you know, that was him, because look, there are business people who are very eccentric and do very well and that's just them, and they're genuine in that regard. But I think that can come back to hurt people, and hurt defend it when they look like they're being a little bit conniving and they're being a little calculating in the way they act, the way they speak, the way they dress, And I think that's what the government's trying to get across, is that he had some type of ulterior motive to act that way and dress that way, which reflects, you know, him being a little shady or a little sinister in the way he ran the business. So I don't think it's material insofar as the charges, but I think it reflects the government's push to have him seen as not just eccentric, but you know, trying to push a narrative about himself in a certain way as a mastermind of this crypto space.

And the defense also spent some time on his relationship with Caroline Ellison. He said he wasn't able to give her the time and attention she wanted in their personal relationship. Why do you think there's time being spent on why they broke up.

Every juror every person is thinking, is she testifying because she was a jilted lover although they may not express it. So when someone testifies against someone who they had a relationship with, and they're giving testimony which is harmful, which you know, really goes at the heart of and criticizing them. If you're a human being and you're watching this you're going, Wow, they must have had a really bad breakup. I wonder if he wronged her and as a result of that, whether she's now getting back at him by testifying, and so that's why it came up.

I mean, how can the defense possibly attack all the evidence against him.

I think what the defense is trying to do is give the jury pause and have the jury get back into the jury room and not immediately say he's dead in the water. He's guilty. You know, the evidence was so overwhelming. I think what the defense wants the jury to do is get back in that jury room and be thoughtful in their deliberations, which I'm sure they'll try to be, but also maybe give him the benefit of the doubt and and not just convict him, because you know, you had fifteen people testify against him, and you had, you know, ten thousand pages of materials about what he did wrong. Maybe the defense is trying to have the jury give him the benefit of the doubt so that they pause in their deliberations and look at him as a human being and not just as this sinister, you know, crypto mogul who was trying to one up people and just take money and abuse money, so on.

Cross, the defendant has given the prosecution a lot to work with, not only his direct testimony, but the commentary that he offered as FTX rose and crashed. So she had a lot to work with.

Yes, a tremendous amount. And that's from his own mouth. And that's both internal messages, external messages, text messages, interviews posts, congressional testimony. I mean, I think it's actually hard for the prosecutor to decide what to use because there is so much. And I think that's the problem he's going to run into, is that everything he testified to on direct can be contrasted with things he said previously which are different from that. And I think that's when the jury is really going to look at him and say, Okay, maybe he was okay on direct, but when he wasn't under the hot lights and he was just free flowing in his opinion about his business and about the money flow, you know, during congressional testimony or during text messages of during interviews six eight ten months ago, look what he said. And so I think the jury's really gonna have a problem with the testimony on direct and things he said six a ten months ago, which is what the government is alleging is where the truth lies.

I mean, it seems like though he almost had no choice because there was so much evidence against him.

Yes, it appeared I agree with you. I think his only chance at this point, after three insiders testified against him, after all the testimony and direct evidence came in about his actions, I think, was him to try and convince the jury out of his own mouth that what they're suggesting he did was not illegal or criminal. He made bad decisions, but it wasn't unlawful. So I agree with you. I think that you know, this is one of those situations where if he didn't testify, it's almost a slam dunk that he would have been convicted. But by putting him up to testify, maybe there's a shot that you'll get a juror too who believe his story.

How harmful is it to his case that the judge, after listening to him testify for hours outside the presence of the jury on Thursday, decided that he could not use an advice of council defense.

I think that was a real problem that could potentially be another nail in the coffin for him, because that was one very significant thing that they were trying to suggest and use, you know, on his behalf, and the judge, you know, made a ruling, which is what the judges have to do. But the consequence of that is that, you know, the defense is fighting with one hand tied behind their back because they can't point to lawyers who are advising the company as being the ones that made the mistake.

Do you think that's a reversible error on appeal.

It's certainly going to be something that goes up on appeal, But the judge, you know, had a solid grounding to make that decision. There was even obviously testimony as to that outside the presence of the jury, So the judge took every step possible to avoid this being in a pellet issue. Although of course if there's a conviction, it will probably go up on appeal, but I think that's likely not to be a material issue.

It's a real uphill battle for bankman Freed.

I don't think it's going to be enough. June. I think that, you know, the defense did the best they could, but the evidence it was so overwhelming, and you had really firsthand test money from the people in the room, and even though he might have come off on direct as best as possible. The cross is going to undermine that and mitigate that, and the Cross is going to be able to show how, you know, he was doing all of this with full knowledge and had directed people to do this and was in control, and you know, there's no way for him to get around that. And he's laid out so much, so many statements previously that there's really nothing now he can say which can't be contrasted with things that he's previously said. And that's a real problem for the defense.

And he's the last defense witness. So the case we'll probably go to the jury this week. Thanks for your insights, Michael. That's former federal prosecutor Michael Weinstein of Cole's Shots. Coming up next, Supreme Court arguments over the phrase trump too Small. This is Bloomberg. On Wednesday, the Supreme Court will hear arguments in a free speech showdown over a man trying to get federal trademark protection for the phrase trump too Small. Attorney Stephen Elstra says he wants to use the phrase on T shirts, but he was refused a trademark by the US Patent in Trademark Office because of a provision in federal law barring registration of marks that identify a living person without that person's consent. However, the US Court of Appeals for the Federal Circuit said that provision violates the First Amendment when the trademark includes criticism of a government official or public figure. Now the justices will decide. Joining me is far As sunder G, a partner at Dorsey and Whitney. In twenty eighteen, the Patent and Trademark Office rejected the application for Trump too small. Tell us why?

So?

The rejection was issued on two grounds. Actually, the first is the one that the Supreme Court is going to take up. So initially the Trademark Office rejected the trademark application based on the consent of a living individual, and that living individual is obviously Trump. There's actually another rejection that is not being considered on the appeal, which will still stand if the case gets remanded, which is false association.

So explain what that means. So when you.

Piper trademark and you include a person's name in it, the Trademark Office will say, hey, we need you to get the consent of that person, so we're not violating their rights of privacy and their rights of publicity. And so when you're applying for it in the name of let's say, in the case of Bloomberg, Bloomberg Radio, Bloomberg News, you'd go and get the consent of mister Bloomberg, and you get that consent because Bloomberg is associated with the company, and of course he knows that it's being done.

Is this based on a trademark law or is it based on a court interpretation.

It's based on a statute. It is based on a section of the Lanham Act. So it's a congressionally enacted statute.

Okay. So now the Federal Circuit, which handles these appellate cases of trademarks, reversed. Why did the Federal Circuit reverse?

So the Federal Circuit reversed on First Amendment grounds. They actually approached the case from the following angle. They asked. They said, the question here is whether the government has an interest in limiting speech on privacy or publicity grounds if that speech involves criticism of government officials, speech that is otherwise at the heart of the First Amendments. And interestingly, there's actually an intermediate step that we didn't discuss initially. What happens is that a trademark Examiner refuses an application, and then there's an initial refusal, there's a final refusal, and then the Trademark Trial and Appeal Board is the one who takes it up first. And the trademark Examiner and the Trademark Trial and Appeal Board, they actually don't have the ability to say that something is unconstitutional. The applicant did make all of the First Amendment arguments to the trademark office, both to the examiner and to the Trademark Trial and Appeal Board, but being an administrative agency, they don't have the ability to say that something is unconstitutional. That's obviously left to the courts. And so that's exactly what the Federal Circuit did.

This appeal to the Supreme Court. Which side is the Biden administration on.

So the government is the one who actually filed the appeal, and the government believes that the ruling of the refusal should stand.

Let's go into a little more detail about what Elster is arguing to the Supreme Court.

So Elster is arguing that his First Amendment rights are being abridged by this refusal of the trademark application. He's making these arguments along with a couple of there are a couple of third parties who filed a Vegas brief here too, And in general, what they're arguing is that a rejection of a trademark application ends up chilling speech when the Trademark Office says that you cannot have a trademark registration that disfavors speech, and so it chills it, and so First Amendment grounds are important here. And Elster actually made his case a little bit more narrow and he is making an argument that this doesn't apply to all cases everywhere that involve any trademark that includes any person's name. He's really narrowing it and thinks it's almost really just a one off case. When he submitted his materials to the Supreme Court, he actually said, the question presented is whether the Trademark Office violated the First Amendment when it applied this refusal of registration to a political slogan on a T shirt that criticized former President Trump without his consent. So you can see that he's not even arguing that it's for political commentary in general, but he's really just arguing political slogan on a T shirt that criticizes President Trump without his consent. The government is taking a much broader view of it, and they're talking about it in a way that makes more sense and has more impact, as I think the Supreme Court will address it in that way where it has farther reaching concerns for various parties, not just people who want to put a trademark slogan on a T shirt that criticizing President Trump or any other political figure.

So go into a little more depth about the government's broader argument.

So the government's broader argument, they want the Court to look at this section, it's called Section ten fifty two C and to see whether it violates the free speech clause of the First Amendment when a trademark contains a criticism of a government figure or a public figure. And the interesting thing I think about the two sides of this case, the government and the applicants, they're starting from different premises. So, as I said before, the applicant his position is that denying a trademark registration practically suppresses speech because when the Trademark Office says you can't have a registration, that's chilling the speech that's in the registration. The government is coming at it from a completely opposite angle, where they're arguing that denial of a trademark registration doesn't restrict speech. It is a government benefit and it is not a restriction of speech. Because you have a trademark registration or you get a trademark registration denied. It doesn't mean you can't put those words on a T shirt. It doesn't mean you can't use those words in a slogan or say them. And so they're coming at it from two different angles. And I think that is the most important thing and interesting thing that the Court hopefully will end up deciding whether the denial of a trademark registration is a restriction of speech or not.

So the Supreme Court in recent years has struck down to trademark laws based on free speech concerns. Tell us about those cases.

So the other two cases that are from recent history. So in twenty seventeen and twenty nineteen, So twenty seventeen the Supreme Court struck down the disparaging part of the refusal on the Lanham Act, and in twenty nineteen the follow on case dealt with immoral and scandalous marks. Now, both of these, these parts of the statute that got struck down as unconstitutional are different, the government argues, than the current statutory provision that we're dealing with, because the disparaging, immoral, and scandalous were all situations where the Trademark Office needed to decide what their viewpoint was on these specific marks, and so whether something is disparaging or not was a judgment call that had to be made by the Trademark Office. Here, the government is arguing that the statute itself is viewpoint neutral because it's just a simple consent. You can say Trump too small, or you can say Trump is great, You're still going to need Trump's consent, And in that way, the government is arguing that it's viewpoint neutral. Now on the other side of it, the applicant is arguing that it's not viewpoint neutral. It's speaker based. And some of the amicus briefs filed actually talked about this, and there was one in particular that was really interesting that was filed by the Foundation of Individual Rights and Expressions in the Manhattan Institute, and they they characterized this clause as a happy talk clause. And so how they're characterizing it that way is that, of course, any trademark application that includes men to of a person's name especially a political figure that is positive more likely to get a sign off on that. If it's negative, the chances of you getting a sign off from that person are really low. And so it is not viewpoint neutral because it favors the positive, happy talk speech as opposed to anything that criticizes the person who's referenced in the trademark application.

So how do you think the Supreme Court will rule.

It's hard to say how they're going to rule. There's actually really good arguments on both sides. One thing that I haven't talked about with you that I did want to mention is that the International Trademark Association stiles a great brief in this case, and they actually argued that they're in support of the government, and so that's support of the refusal. They made this really good argument that the refusal of a trademark application and is not a denial of speech. It doesn't actually limit speech. It does quite the opposite. They argue that the refusals under this section two see as it's called, actually permit more speech, not less. And so their argument goes, when the USPTO grants somebody a trademark registration, so say they granted Elster a trademark registration for Trump too small. Mister Elsterer then now has the ability to stop other people from using that phrase on T shirts and possibly in other ways, and so that's actually limiting speech. And so it's an It's an interesting argument, I think in terms of how the Supreme Court is going to come out. Like I said, I think there are really good arguments on both sides. It's hard to tell, especially ahead of the arguments, really what's going to happen. I think that a key thing here is that hopefully the Supreme Court will realize that parsing this in a small way is going to be difficult to enforce. And what I mean by that is it would be very difficult for the Trademark Office to be the arbiter of does this particular trademark involve a political criticism or a parody or political speech that we want to protect with free speech, whereas some other version of a trademark doesn't fall into that category and can continue to be refused under this section to see because for example, it's not about a political figure. I think that's going to be a dangerous road to go down, and I hope that the Suprene Court doesn't end up giving that ability to the Trademark Office because it's going to be very hard for them to make those determinations and for them to enforce it.

We'll learn more during the oral arguments on Wednesday. Thanks so much, Fara. That's Fara Sunderg of 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

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