Court Delivers Opinion On Defendant’s Proffered Testimony About Involvement Of Counsel In Criminal Case – White Collar Crime, Anti-Corruption & Fraud


To print this article, all you need is to be registered or login on Mondaq.com.

On February 7, 2024, the court in the Southern District of New
York released the opinion of Judge Lewis Kaplan in United
States v. Samuel Bankman-Fried
, 22-cv-673, which significantly
limited the scope of defendant’s proffered testimony relating
to the involvement of counsel regarding certain matters at issue
during defendant’s criminal trial.

Case Background

In November 2023, defendant Samuel Bankman-Fried was convicted
on seven counts including fraud, conspiracy and money laundering
stemming from the highly publicized collapse of FTX, a
cryptocurrency exchange, and Alameda Research, a cryptocurrency
trading firm. The defendant was the founder and former CEO of both
companies.

During trial, defendant disclaimed a formal
“advice-of-counsel” defense, and the government moved
in limine to preclude defendant from offering evidence
that the presence and involvement of company attorneys during the
making of certain decisions related to charged conduct demonstrated
that defendant acted in good faith and lacked criminal intent. The
court then precluded defendant from referring in his opening
statement to the presence or involvement of counsel and required
defendant to provide notice before offering any evidence or
argument regarding the involvement of attorneys. Thereafter,
defendant provided notice to the court that he intended to testify
regarding the involvement of counsel concerning the following four
topics:

  1. FTX and Alameda’s implementation of document retention and
    auto-delete policies;

  2. The formation of certain entities and related bank accounts and
    processing agreements related to FTX and Alameda;

  3. Certain loans between Alameda and FTX executives; and

  4. The drafting of certain terms of intercompany agreements
    between FTX and its customers.

In seeking further specificity following its receipt of
defendant’s notice, the court took an offer of proof, which
involved both direct and cross-examination of defendant, outside
the presence of the jury. After the offer of proof, the court ruled
that defendant could testify regarding the involvement of counsel
in connection with the topic of document retention and auto-delete
policies because “this testimony would not pose a substantial
risk of confusion or unfair prejudice,” but excluded testimony
regarding the role of counsel as to the other three topics
proffered by defendant, as “testimony on these topics would be
minimally probative but would be likely to be substantially
‘confusing and highly prejudicial.'”

The Court’s Decision

Judge Kaplan explained that, because defendant had disclaimed an
advice-of-counsel defense, the court need not consider whether
defendant satisfied the elements of a formal advice-of-counsel
defense.1 Rather, the court should evaluate whether the
proffered testimony was admissible under Federal Rules of Evidence
401 and 403 (i.e. whether the proffered testimony’s
probative value is substantially outweighed by unfair prejudice,
confusing the issues or misleading the jury). According to Judge
Kaplan, because defendant sought to admit evidence of attorney
involvement to support his good faith defense (and had disclaimed
his advice-of-counsel defense), the requirements to establish an
advice-of-counsel defense were inapplicable.

In previewing his Rule 403 analysis, Judge Kaplan explained
that, while evidence of attorney involvement can be probative of a
defendant’s state of mind, it can also pose the substantial
risk of misleading the jury, as a jury could be led to believe that
a lawyer’s presence during certain decision-making meetings
means that the lawyer blessed (either implicitly or explicitly) the
legality of all aspects of a particular decision. (Citations
omitted). In situations such as this, where defendant has
disclaimed an advice-of-counsel defense, such a misunderstanding by
the jury would unfairly prejudice the government because it would
essentially give the defendant the benefit of an advice-of-counsel
defense without having to bear the burden of proving any of the
required elements.

The court then engaged in a Rule 403 analysis of each of
defendant’s four proffered topics. The court admitted
defendant’s testimony with regard to document retention and
auto-delete policies and reasoned that, even if the jury assumed
that a lawyer sanctioned the companies’ data retention and
deletion policies, such an assumption would not unfairly prejudice
the government because defendant’s testimony did not suggest
that defendant believed that his other, charged conduct was
lawful.

The court excluded defendant’s testimony regarding the
second and third topics―the formation of entities and related
bank accounts and processing agreements, and loans between
executives―based on its reasoning that the proffered
testimony offered little probative value as defendant admitted that
he did not discuss the core issues relating to the criminal charges
(i.e. the misuse of FTX customer deposits and funds) with
counsel, therefore the attorneys’ involvement was only
tangential (at best) to the charged conduct. Thus, while the
proffered testimony was of minimal probative value, the court
concluded that it would have been highly misleading if defendant
were permitted to suggest that the attorneys’ involvement in
collateral activities (i.e. the formation of certain
entities and structuring of certain loans) gave defendant a
reasonable belief that his charged conduct relating to the
misappropriation of FTX client funds was lawful. Finally, the court
excluded defendant’s proffered testimony regarding the fourth
topic of the drafting of certain terms of intercompany agreements
between FTX and its customers because defendant testified on
cross-examination during the offer of proof that he never discussed
the charged conduct with counsel and therefore “could not have
taken comfort in conversations he never had.” Thus, the court
ruled that any probative value would have been outweighed
significantly by the risk of confusing the jury and unfairly
prejudicing the government.

Key Takeways

  • The court’s decision thwarted defendant’s attempt to
    avail himself of the benefit of a formal advice-of-counsel defense
    while simultaneously avoiding the burden of satisfying the
    requisite elements of that defense.

  • Such decision highlights the risks defendants take when they
    disclaim a formal advice-of-counsel defense with the hope that they
    can still negate allegations of criminal intent through informal
    allusions to attorney involvement.

Footnotes

1. In order to establish an advice-of-counsel defense, a
defendant must show that he or she: (i) made a complete disclosure
to counsel concerning the matter at issue; (ii) sought advice as to
the legality of his or her conduct; (iii) received advice that his
or her conduct was legal; and (iv) relied on that advice in good
faith. In addition, as a practical matter, defendant must also
waive the attorney-client privilege in order to assert this
defense.

Disclaimer: This Alert has been
prepared and published for informational purposes only and is not
offered, nor should be construed, as legal advice. For more
information, please see the firm’s

full disclaimer.

POPULAR ARTICLES ON: Criminal Law from United States

A Review Of Recent Whistleblower Developments

Foley & Lardner

Whistleblower Developments is a periodic report covering significant cases, decisions, proposals, and legislation related to whistleblower statutes and how they may impact your business.

title_words_as_hashtags

Leave a Comment

Your email address will not be published. Required fields are marked *