Sam Bankman-Fried’s legal team pursues FTX terms of service theory in movement.

Lawyers representing former FTX CEO Sam “SBF” Bankman-Fried have filed a motion in the United States District Court for the Southern District of New York to address certain evidentiary issues in the ongoing criminal trial. The motion seeks to bring up information from FTX’s terms of service during witness testimonies. The dispute centers around the alleged misuse of FTX funds and the competing theories put forth by prosecutors and the defense team.

According to Bankman-Fried’s legal team, prosecutors planned to call witnesses and establish their understanding and expectation of how their deposits at FTX would be used. However, the defense argues that compliance with FTX’s terms of service is a defense to the charged offense, regardless of the users’ understanding. In their filing, the defense stated, “[I]t is the defense’s position that the rights and obligations of parties to a commercial relationship are not established by their expectations and understandings for purposes of the misappropriation theory of the federal fraud statutes.” They anticipate questioning witnesses who were FTX customers, investors, and lenders to gather testimony about the factors they considered material in entering the arrangements and transactions related to the trial.

The defense has requested permission from the court to question witnesses for the prosecution based on FTX’s terms of service. They also seek to preclude testimony from “lay fact witnesses.” The defense pointed to the testimony of Paradigm co-founder Matt Huang, claiming that he offered expert opinions rather than everyday lay experience regarding FTX’s services. The defense argues that seeking to prove misappropriation through testimonies from customers and others regarding their beliefs and expectations would sidestep the government’s burden to prove an essential element of its embezzlement theory beyond a reasonable doubt. They assert that evidence of customers’ belief regarding their legal relationship with FTX would only serve to distract and confuse jurors when considering the facts in light of the meaning of the Terms of Service.

The criminal trial against Sam Bankman-Fried has been ongoing, with October 13 marking the eighth day of proceedings. Bankman-Fried has pleaded not guilty to all charges. Former Alameda Research CEO and Bankman-Fried’s ex-girlfriend, Caroline Ellison, testified this week, admitting to committing fraud at the direction of Bankman-Fried by providing fraudulent documents and making misleading statements about Alameda’s use of FTX funds.

BlockFi founder and CEO Zac Prince also took the stand, testifying about the $400-million credit line that BlockFi provided to FTX US in July 2022. He discussed the impact of the collapse of Terraform Labs and Three Arrows Capital on the situation. The trial has been adjourned until October 16.

In summary, Bankman-Fried’s legal team is seeking to address evidentiary issues in the ongoing criminal trial by bringing up information from FTX’s terms of service during witness testimonies. The defense argues that compliance with the terms of service is a defense to the charged offense, regardless of users’ understanding. The trial continues with testimonies from key figures involved in the case.

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