A federal judge on Thursday ordered lawyers for Sam Bankman-Fried, the disgraced founder of the bankrupt cryptocurrency exchange FTX, to create a plan with prosecutors that would ensure Mr. Bankman-Fried does not delete text messages he sends while he awaits trial on charges that he orchestrated the theft of billions of dollars in customer deposits.
Judge Lewis A. Kaplan of the Federal District Court in Manhattan issued his instructions at a hearing Thursday, two days after rejecting an agreement that federal prosecutors in Manhattan struck with Mr. Bankman-Fried’s lawyers that would have limited his ability to use certain encrypted messaging services like Signal.
Judge Kaplan said the proposal had done “nothing but spark more questions in my mind,” explaining it did not fully eliminate the potential for Mr. Bankman-Fried to send messages that he could later delete.
“I read all the spy novels,” Judge Kaplan said.
The back and forth in court arose from a dispute over the conditions of Mr. Bankman-Fried’s bail. Prosecutors sought additional conditions last month after presenting evidence in court filings that Mr. Bankman-Fried had sent messages over email and the messaging app Signal to Ryne Miller, the general counsel of the U.S. arm of FTX. In court filings, prosecutors said Mr. Miller, who was not identified by name, could be a potential witness against Mr. Bankman-Fried.
They asked the judge to stop Mr. Bankman-Fried from contacting former FTX employees and using Signal or other encrypted apps, arguing that the technology might enable Mr. Bankman-Fried to secretly engage in witness tampering.
What to Know About the Collapse of FTX
What is FTX? FTX is a now bankrupt company that was one of the world’s largest cryptocurrency exchanges. It enabled customers to trade digital currencies for other digital currencies or traditional money; it also had a native cryptocurrency known as FTT. The company, based in the Bahamas, built its business on risky trading options that are not legal in the United States.
Mr. Bankman-Fried’s lawyers denied that he was trying to influence a witness. But after Judge Kaplan temporarily imposed the new restrictions, defense lawyers reached an agreement with prosecutors to bar Mr. Bankman-Fried from using certain encrypted apps but explicitly permit him to engage in other forms of electronic communication.
At the hearing, Judge Kaplan said he was not satisfied with the agreement, noting “I am far less concerned about the defendant’s convenience.” He gave both parties until Tuesday to submit a new proposal and until Feb. 21 to finalize it.
A lawyer for Mr. Bankman-Fried said there were some commercial products available that retain messages even if they are deleted, and that could be one solution to address Judge Kaplan’s concerns.
Once a high-flying crypto executive, Mr. Bankman-Fried, 30, was arrested in December on charges that he used billions of dollars of FTX customer deposits to finance political contributions, lavish real estate purchases and trading operations at his hedge fund.
He has been living at home with his parents in Palo Alto, Calif., after reaching a $250 million bail agreement late last year. The terms of the bail package required him to stay confined to his parents’ house and wear an electronic monitoring device on his ankle.
The bail terms have drawn criticism, in part because Mr. Bankman-Fried was allowed to move home without posting any actual money at the time he was released. The court on Tuesday entered a letter on the case docket from a retired detective in New Haven, Conn., who asked Judge Kaplan to reconsider the home detention given the magnitude of Mr. Bankman-Fried’s apparent theft and misuse of billions in customer money.
Mr. Bankman-Fried’s bond was secured largely by his parent’s $4 million home. Two unnamed people who are not related to him also agreed to secure the bond with a much smaller amount of collateral. In theory, those people and Mr. Bankman-Fried’s parents would be liable for the entire $250 million if Mr. Bankman-Fried fled.
Last month, Judge Kaplan granted a motion by nearly a dozen news organizations, including The New York Times, to unseal the names of the two people who had guaranteed Mr. Bankman-Fried’s bail alongside his parents. Mr. Bankman-Fried’s lawyers filed an appeal on Tuesday seeking to keep the names confidential.
The Aftermath of FTX’s Downfall
The spectacular collapse of the crypto exchange in November has left the industry stunned.
Unlike the vast majority of criminal defendants awaiting trial, Mr. Bankman-Fried has not stayed silent. He has met with reporters at his home, in some cases granting on-the-record interviews. He has also posted messages on Twitter and on his personal Substack page.
In most of his posts, Mr. Bankman-Fried has maintained his innocence and insisted that FTX has a lot more in assets than its bankruptcy lawyers have said.
Mr. Bankman-Fried appeared in court on Thursday, wearing a navy suit and a blue-and-white striped tie. The government is not paying for Mr. Bankman-Fried’s travel to federal court in New York, a spokesman for the U.S. attorney’s office in Manhattan said.
At one point in the hearing, Judge Kaplan remarked that he had recently read about how Mary, Queen of Scots, had written some of her letters in encrypted code and researchers had finally found a way to decipher them. Prosecutors said they were not as worried about handwritten communications by Mr. Bankman-Fried as they were about electronic messages.
But Judge Kaplan retorted: “You don’t think this defendant is bright enough to encrypt something without a computer?”