The former FTX CEO is facing a near-total ban, or even bail revocation, after using encrypted messaging and a VPN. He's also fighting a subpoena to testify in another bankruptcy case.
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Sam Bankman-Fried has agreed to pay for an independent technical expert to help the judge decide just how much of the Internet is off-limits while awaiting his fraud trial.
After two questionable uses of technology that could hide his online activities, federal prosecutors asked the court to essentially boot him off everything but Gmail and text messages.
However, Bankman-Fried may be playing with fire by contesting prosecutors' demands.
An increasingly exasperated Judge Lewis Kaplan has made clear that he is close to revoking Bankman-Fried's bail altogether.
The former CEO of the bankrupt FTX exchange is awaiting trials on eight counts including fraud and violation of anti-money laundering (AML) and campaign finance laws. He is accused of misappropriating as much as $10 billion of the exchange clients' funds and losing some $8 billion of it trying to prop up his wobbling crypto trading firm Alameda Research.
Judge Kaplan is looking into how to respond to two incidents that prosecutors call potentially serious violations of his bail agreement. In the first, Bankman-Fried reached out to a potential witness against him to suggest they "vet things with each other" via Signal, a messaging app that can be set to permanently delete messages.
In the second, he used a virtual private network, or VPN, that is designed to hide online activities — in order to watch the Super Bowl, his lawyers told Judge Kaplan. Prosecutors asked that he be limited to Gmail, unencrypted SMS texting, and otherwise using electronic devices only to read legal documents.
At a hearing about the bail conditions on Monday, Judge Kaplan said there is reason to believe Bankman-Fried may have been attempting to tamper with a witness while on bail. He said:
"Why am I being asked to turn him loose in this garden of electronic devices?"
Voyager Strikes Back
That's not the only potential legal trouble Bankman-Fried is facing this week.
A subpoena by a bankrupt crypto lender has the potential to make him take the Fifth before his criminal trial to avoid testifying.
While asserting his Fifth Amendment right to avoid self-incrimination wouldn't formally affect Bankman-Fried's criminal trial, it would certainly get wide attention in a case high profile enough that many potential jurors will hear of it.
He has been asked to provide documents in the bankruptcy case of Voyager Digital, a crypto lender that went under this summer after making bad loans to also-bankrupt hedge fund Three Arrows Capital.
In September, FTX won a bankruptcy auction for Voyager's assets, promising that customers could recover almost three-quarters of their funds after the lender found itself in a $1.3 billion hole. That deal collapsed along with the FTX empire in November. However, also-bankrupt Alameda's new management is attempting to claw back almost $450 million from Voyager.
In a separate case, the Federal Trade Commission has asked a judge to halt or at least amend Voyager's bankruptcy plan. In doing so, it revealed that it is investigating the firm and its leaders for "deceptive and unfair marketing of cryptocurrency to the public."
The regulatory agency told the judge that as written the bankruptcy could tie its hands and prevent it from filing a complaint — which could well lead to a large fine.
The SEC has also objected to the sale.
