Federal prosecutors are trying to prohibit FTX founder Sam Bankman-Fried from privately contacting current and former employees of the bankrupt cryptocurrency exchange to prevent potential witness tampering in a criminal case accusing him of bilking investors and customers.
The request, made in a letter filed late Friday by U.S. Justice Department lawyers, prompted an indignant response from Bankman-Fried's lawyer, who accused prosecutors of twisting the facts to cast the FTX founder in a sinister light ahead of his trial scheduled later this year.
The testy exchange prompted U.S. District Judge Lewis Kaplan in New York to issue a Saturday order that included admonishment for the opposing lawyers in the case to refrain from "pejorative characterizations" of each other's actions and motives.
Bankman-Fried, 30, has been under confinement at his parents' home in Palo Alto, California, since pleading not guilty earlier this month to charges against him. He is accused of diverting massive sums of FTX customer funds to buy property, donate to politicians and finance risky trades at Alameda Research, his cryptocurrency hedge fund trading firm.
Federal prosecutors raised their concerns about Bankman-Fried's attempts to connect with potential witnesses in the case after discovering he sent an encrypted message over the Signal texting app on Jan. 15 to the general counsel of FTX US, according to their letter to Kaplan.
"I would really love to reconnect and see if there's a way for us to have a constructive relationship, use each other as resources when possible, or at least vet things with each other," Bankman-Fried wrote to the FTX general counsel, dubbed "Witness 1," in the prosecutors' letter.
Federal prosecutors told Kaplan that Bankman-Fried's communications are a sign that he may be trying in influence a witness with incriminating evidence against him. As a safeguard, the prosecutors want Kaplan to revise the conditions of Bankman-Fried's bail so he can't communicate with current or former employees of FTX and Alameda Research outside the presence of a lawyer without a waiver from the Justice Department.
But Bankman-Fried's attorney, Mark Cohen, painted a much different picture in his fiery retort to the prosecutors. Cohen described Bankman-Fried's effort to reach the FTX general counsel as "an innocuous attempt to offer assistance in FTX's bankruptcy process."
In his Saturday order, Kaplan demanded complete copies of Bankman-Fried's electronic communications to be provided by Monday.
Federal prosecutors also want Kaplan to change the conditions of Bankman-Fried's bail to prevent him from communicating through Signal, which has an auto-delete option to make messages quickly disappear in addition encryption technology to help shield the contents from outsiders.
"Using Signal to contact potential witnesses increases the likelihood that detection of any attempt to obstruct justice by influencing a witness will itself be obstructed," the prosecutors told Kaplan.
But Cohen wrote that the message sent to the FTX general counsel didn't have an auto-delete feature. Cohen also assured the judge that Bankman-Fried has turned off the disappearing messages option in his Signal account.
"The government cannot justify a bail condition based on an unfounded concern about what Mr. Bankman-Fried might do, when there is no evidence that he is, in fact, doing it," Cohen said.
Before prosecutors asked the judge to impose broad restrictions that would prevent Bankman-Fried from privately communicating with any current or former FTX employees, Cohen said the two sides had already been in negotiations to reach a "reasonable" compromise before prosecutors "sandbagged" the talks with their late Friday letter to Kaplan.
By Cohen's estimate, FTX and Alameda Research have about 350 current and former employees who would be blocked off from Bankman-Fried by a blanket ban, including some that might have crucial information for his defense during a trial tentatively scheduled to begin in October.
Bankman-Fried was willing to voluntarily agree to a prohibition against him communicating with several top FTX executives in exchange for being allowed to remain in contact with others such as his father, his therapist still employed by the cryptocurrency exchange and a range of other unidentified workers who directly reach out to him.
Kaplan told federal prosecutors to respond to Cohen's claims in his seven-page letter by Monday.