Why SBF cannot fall back on U.S.’ lack of crypto regulation

• The prosecution has charged FTX’s SBF for the misappropriation of customer assets.
• The action doesn’t become legal due to the lack of crypto regulation, the DoJ claimed.

The trial against FTX [FTT] founder Sam Bankman-Fried “SBF” finally began on 3 October, and one of the most contentious issues — no clear crypto regulatory framework in the U.S.— has come to the fore.

Notable, the prosecution and the defense have started to lock horns over the relevance of regulatory norms around crypto in the U.S. to the case.

However, prosecutors representing the U.S. Department of Justice (DOJ) filed

a motion in the court on 4 October, in which they claimed that the lack of a clear legal framework doesn’t restrict them from pressing charges against SBF.

The defense had claimed in its 2 October filing that FTX’s operations are spread across the globe. For its operations through its local entity in the U.S., it followed all the rules. But, as things stood,

“FTX was not regulated in the United States.”

The DOJ argued in its motion that the lack of crypto regulation is not relevant to whether “the victims” (viz. FTX customers) entrusted their funds to the defendant’s care. The authorities have charged SBF for the misappropriation of customer assets.

The action doesn’t become legal due to the lack of crypto regulation, the filing claimed. Existing laws are sufficient to prosecute the FTX founder.

The defense also argued that it used to be common in the crypto industry to pool and reallocate customer funds. In response, the DOJ said that legal argument only worked if SBF believed the practice was lawful.

The DOJ also said that it doesn’t mind SBF highlighting his philanthropy and charity work. But the defense needs to submit such plans to the court beforehand so that authorities can ascertain that the defense isn’t using these details for an image makeover.

SBF urges restricting testimonies

Earlier, the defense team pleaded that the court restrict testimonies from certain users, investors, and alleged co-conspirators. They claimed that the prosecution had similarly tried blocking testimonies proposed by the defense team.

In particular, the defense team opposed the testimony of a Ukrainian national. The defense claimed that the testimony would elicit the jury’s “sympathy and outrage” due to the ongoing conflict in the country.

We are well aware of the lack of consensus among the U.S. regulators over the status of crypto assets. In the face of the lack of a crypto-specific regulatory framework, the security regulator’s action against alleged violations in the crypto industry is often characterized as “regulation by enforcement.”

SBF, FTX’s disgraced founder, is facing seven counts, including wire fraud and securities fraud.