Sam Bankman-Fried filed a movement for a brand new trial on Feb. 10, advancing a declare that reframes FTX’s collapse not as fraud-driven insolvency however as a recoverable liquidity disaster.
The movement invokes Rule 33 of the Federal Guidelines of Legal Process, which allows courts to grant new trials when “the curiosity of justice so requires,” sometimes when newly found proof surfaces or basic trial errors taint the decision.
SBF’s submitting argues each that testimony from silenced witnesses would have refuted the federal government’s insolvency narrative and that prosecutorial intimidation denied him due course of.
On the movement’s middle sits a hanging numerical declare: FTX held a optimistic web asset worth of $16.5 billion as of the November 2022 chapter petition date.
The implication is that if the property can finally repay clients, the trial’s portrayal of billions in stolen, irrecoverable funds was deceptive. In response to Reuters, the chapter plan contemplates distributing not less than 118% of shoppers’ November 2022 account values.
Nonetheless, this accounting argument collides with a deeper query: Does reimbursement erase fraud?
The reply illuminates why “solvency” in crypto exchanges operates throughout dimensions that steadiness sheets alone can not seize, and why FTX has develop into a case examine in how narratives are constructed when courtroom info and monetary actuality diverge.
Entire in {dollars}, not in form
Chapter legislation fixes claims at a snapshot. Below 11 U.S.C. § 502(b), the worth of creditor claims is decided as of the petition date. On this case, Nov. 11, 2022.
For FTX clients, meaning their entitlements had been calculated utilizing crypto costs from the depths of the 2022 market collapse, not the following rally that noticed Bitcoin climb from below $17,000 to a peak of $126,000.
Courtroom filings within the Bahamas proceedings make this specific: claims for appreciation after the petition date will not be a part of the core buyer entitlement. When the property introduced distributions exceeding 100%, that share displays petition-date greenback values, not the in-kind restoration of the particular tokens clients believed they held.
A buyer who deposited one Bitcoin in 2021 doesn’t obtain one Bitcoin again. As an alternative, they obtain the November 2022 dollar-equivalent worth of the Bitcoin, plus a premium reflecting asset recoveries.
Prospects objected exactly as a result of the petition-date valuation mechanism excluded them from the crypto market’s subsequent appreciation. Being paid “in full” below the chapter doctrine can nonetheless imply being underpaid relative to the asset you thought you owned.
The authorized framework treats crypto balances as dollar-denominated claims, even when customers expertise them as specific-asset holdings with 24/7 withdrawal rights.
Three layers of solvency (and why NAV is not sufficient)
FTX’s movement treats solvency as a single accounting query: do property exceed liabilities at a cut-off date?
Nonetheless, crypto exchanges face a extra complicated solvency structure that operates throughout three dimensions.
Accounting solvency, outlined by web asset worth, is the steadiness sheet view that the movement emphasizes. Even when the $16.5 billion determine is correct, it relies upon totally on valuation decisions: which property counted, at what haircuts, and the way liabilities had been outlined.
The property’s recoveries benefited from enterprise capital stakes in corporations like Anthropic that weren’t instantly liquid in November 2022 however later returned substantial worth.
Liquidity solvency issues whether or not crypto exchanges are structurally sound. Liabilities are on-demand, sometimes denominated in particular tokens, and confidence-sensitive.
Tutorial work analyzing the 2022 “crypto winter” explicitly frames the interval as a run-driven disaster. When FTX confronted its liquidity disaster in November 2022, it processed roughly $5 billion in withdrawal requests over two days.
The query wasn’t whether or not the enterprise portfolio would finally be price one thing, however whether or not liquid, on-chain property matched on-demand liabilities in actual time.
Governance solvency is the place fraud enters, no matter restoration.
Did the alternate signify that buyer property had been segregated? Have been conflicts of curiosity managed? These questions persist even when the property later recovers sufficient to pay claims.
The IOSCO remaining suggestions on crypto-asset regulation deal with conflicts of curiosity and custody/client-asset safety as central failure modes, distinct from easy insolvency.
Why reimbursement would not dissolve fraud
Trial testimony established that Alameda Analysis, Bankman-Fried’s buying and selling agency, ran what prosecutors described as a multi-billion-dollar deficit in its FTX person account, utilizing buyer deposits as collateral and working capital.
The federal government’s case rested on misrepresentation, comprising clients being informed that property had been segregated, misuse of funds, with funds commingled and lent to Alameda, and governance failure characterised by danger controls being bypassed or nonexistent.
The movement argues that if clients might be repaid, the “billions in losses” narrative was false. However fraud legislation and chapter legislation ask totally different questions.
Fraud focuses on what was represented on the time and what was performed with buyer property. Chapter focuses on what collectors finally get better.
Even below the movement’s personal framing, the Debtors’ property initially claimed each FTX and FTX US had been bancrupt on Nov. 11, 2022, then revised that view solely after in depth asset restoration work.
Solvency assessments depend upon assumptions, and people assumptions change as illiquid property get valued, disputes get resolved, and market circumstances shift.
QuestionBankruptcy/balance-sheet lensCriminal/fraud lensWhat proof solutions itWhat it doesn’t proveWere clients “made entire”?Measured in petition-date USD claims; distributions can exceed 100% of Nov 2022 valuesNot the usual; reimbursement doesn’t decide prison liabilityPlan phrases + distribution notices; courtroom orders making use of petition-date valuation; reporting on “≥118% of Nov 2022 account values”That clients received their cash again, or that wrongdoing didn’t occurWere clients made entire in-kind?Usually no: entitlement is greenback worth at petition date, not token restitutionStill irrelevant to intent/misrepresentation; in-kind shortfall could present reliance on representationsBankruptcy valuation rulings; buyer objections re: misplaced upsideThat in-kind loss alone proves fraud (it could additionally mirror chapter doctrine)Was there a liquidity mismatch through the run?Liquidity crunch can exist even when NAV later turns optimistic; runnable liabilities vs illiquid assetsCan help theories of reckless risk-taking, concealment, or misuse relying on conductWithdrawal demand figures; inside liquidity dashboards; contemporaneous comms; timing of pauses/haltsThat “it was solely a run” excuses misuse of buyer propertyWere buyer property segregated as represented?Core governance/custody problem; segregation determines how claims and recoveries ought to workCentral to fraud: what was promised vs what was performed with buyer propertyTOS/advertising statements; custody insurance policies; ledger traces; inside controls docsThat later distributions validate earlier custody practicesWere conflicts managed (alternate vs affiliated buying and selling)?Battle construction impacts danger, valuation haircuts, recoveries, and creditor outcomesConflicts might be proof of intent, concealment, or self-dealingOrg charts; related-party agreements; permissions/allowlists; governance minutesThat conflicts = crime by themselves (however unmanaged conflicts elevate the chance)Did governance/danger controls forestall misuse?Weak controls elevate chance of loss/run; impacts creditor recoveries and supervisory findingsWeak controls can help negligence/recklessness; bypassing controls can help intentAudit trails; risk-limit methods; exception logs; approval workflows; whistleblower/inside reportsThat “controls existed on paper” means they functioned in practiceDid later recoveries change the ex ante conduct?Recoveries can change the property’s solvency story and payout math over timeGenerally no: fraud evaluates conduct and intent on the timeTimeline of asset discovery/valuation revisions; litigation recoveries; VC stake monetizationsThat ex publish solvency retroactively makes earlier statements trueDoes optimistic NAV negate misrepresentation?Optimistic NAV could depend upon valuation decisions (haircuts, illiquid marks, disputed property) and says nothing about liquidityNo: misrepresentation can exist even when a agency may theoretically pay again laterBasis for NAV declare; asset/legal responsibility definitions; valuation memos; trial report on representationsThat “NAV optimistic” means “no fraud,” or that clients confronted no real-time withdrawal danger
What this implies going ahead
If the movement’s $16.5 billion NAV declare turns into the brand new reference level, it shifts the FTX narrative from “huge gap” to “liquidity mismatch with eventual restoration.”
That shift has penalties past Bankman-Fried’s attraction.
First, it demonstrates that proof-of-reserves with out corresponding legal responsibility disclosures and liquidity stress testing is incomplete. Displaying that property exist would not show that these property can meet withdrawal demand when confidence breaks.
The following crypto disaster will not announce itself as insolvency. It should seem as opacity plus a run-on mismatched liquidity.
Second, it indicators that regulation will converge on governance chokepoints: segregation necessities, conflict-of-interest controls, and real-time legal responsibility transparency.
The vertically built-in mannequin, the place the identical entity operates the alternate, holds custody, runs a buying and selling desk, and manages a enterprise fund, turns into the structural goal, not simply particular person misconduct.
Third, the petition-date valuation doctrine turns into a market-structure query. If chapter legislation systematically shifts post-petition appreciation away from clients and into the property, customers internalize the chance of custody in a different way.
That dynamic could speed up the transition to self-custody and decentralized infrastructure in future cycles.
The courtroom-versus-ledger downside
The movement finally asks: if clients find yourself financially entire below the chapter plan, how can the trial’s fraud narrative stand?
The reply lies within the distinction between ex publish restoration and ex ante conduct. Fraud is not erased by later solvency, any greater than a financial institution theft is undone if the cash is finally returned.
FTX’s steadiness sheet and FTX’s courtroom report inform totally different tales as a result of they measure various things.
The ledger asks whether or not the worth was preserved. The trial requested whether or not the principles had been adopted, the representations had been sincere, and the dangers had been disclosed.
The truth that the property recovered sufficient property to pay claims at petition-date values doesn’t resolve whether or not buyer funds had been misused, whether or not governance failed, or whether or not customers had been misled in regards to the security of their deposits.
The FTX case might be remembered not for its remaining restoration share however for exposing the hole between crypto solvency as a spreadsheet train and crypto solvency as a real-time, multi-dimensional governance query.
“Made entire” in chapter phrases can coexist with “defrauded” in criminal-law phrases. The movement’s $16.5 billion NAV declare would not dissolve that rigidity. It makes it specific.
