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 Felony Process, which allows courts to grant new trials when “the curiosity of justice so requires,” usually 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 heart sits a hanging numerical declare: FTX held a constructive 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 accordance with Reuters, the chapter plan contemplates distributing not less than 118% of shoppers’ November 2022 account values.
Nevertheless, this accounting argument collides with a deeper query: Does compensation erase fraud?
The reply illuminates why “solvency” in crypto exchanges operates throughout dimensions that stability sheets alone can not seize, and why FTX has change into a case examine in how narratives are constructed when courtroom info and monetary actuality diverge.
Entire in {dollars}, not in sort
Chapter regulation fixes claims at a snapshot. Beneath 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 have been calculated utilizing crypto costs from the depths of the 2022 market collapse, not the following rally that noticed Bitcoin climb from underneath $17,000 to a peak of $126,000.
Courtroom filings within the Bahamas proceedings make this express: claims for appreciation after the petition date usually are not 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 a substitute, they obtain the November 2022 dollar-equivalent worth of the Bitcoin, plus a premium reflecting asset recoveries.
Clients objected exactly as a result of the petition-date valuation mechanism excluded them from the crypto market’s subsequent appreciation. Being paid “in full” underneath 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?
Nevertheless, crypto exchanges face a extra complicated solvency structure that operates throughout three dimensions.
Accounting solvency, outlined by web asset worth, is the stability sheet view that the movement emphasizes. Even when the $16.5 billion determine is correct, it relies upon fully on valuation selections: which property counted, at what haircuts, and the way liabilities have been outlined.
The property’s recoveries benefited from enterprise capital stakes in firms like Anthropic that weren’t instantly liquid in November 2022 however later returned substantial worth.
Liquidity solvency considerations whether or not crypto exchanges are structurally sound. Liabilities are on-demand, usually 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, regardless of restoration.
Did the alternate characterize that buyer property have been segregated? Had been conflicts of curiosity managed? These questions persist even when the property later recovers sufficient to pay claims.
The IOSCO last suggestions on crypto-asset regulation deal with conflicts of curiosity and custody/client-asset safety as central failure modes, distinct from easy insolvency.
Why compensation does 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 instructed that property have been segregated, misuse of funds, with funds commingled and lent to Alameda, and governance failure characterised by threat controls being bypassed or nonexistent.
The movement argues that if clients may be repaid, the “billions in losses” narrative was false. However fraud regulation and chapter regulation ask totally different questions.
Fraud focuses on what was represented on the time and what was completed with buyer property. Chapter focuses on what collectors finally recuperate.
Even underneath the movement’s personal framing, the Debtors’ property initially claimed each FTX and FTX US have 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 situations shift.
| Query | Chapter/balance-sheet lens | Felony/fraud lens | What proof solutions it | What it does not show |
|---|---|---|---|---|
| Had been clients “made entire”? | Measured in petition-date USD claims; distributions can exceed 100% of Nov 2022 values | Not the usual; compensation doesn’t decide prison legal responsibility | Plan phrases + distribution notices; court docket orders making use of petition-date valuation; reporting on “≥118% of Nov 2022 account values” | That clients obtained their cash again, or that wrongdoing didn’t happen |
| Had been clients made entire in-kind? | Typically no: entitlement is greenback worth at petition date, not token restitution | Nonetheless irrelevant to intent/misrepresentation; in-kind shortfall could present reliance on representations | Chapter valuation rulings; buyer objections re: misplaced upside | That in-kind loss alone proves fraud (it could additionally replicate chapter doctrine) |
| Was there a liquidity mismatch throughout the run? | Liquidity crunch can exist even when NAV later turns constructive; runnable liabilities vs illiquid property | Can help theories of reckless risk-taking, concealment, or misuse relying on conduct | Withdrawal demand figures; inner liquidity dashboards; contemporaneous comms; timing of pauses/halts | That “it was solely a run” excuses misuse of buyer property |
| Had been buyer property segregated as represented? | Core governance/custody concern; segregation determines how claims and recoveries ought to work | Central to fraud: what was promised vs what was completed with buyer property | TOS/advertising statements; custody insurance policies; ledger traces; inner controls docs | That later distributions validate earlier custody practices |
| Had been conflicts managed (alternate vs affiliated buying and selling)? | Battle construction impacts threat, valuation haircuts, recoveries, and creditor outcomes | Conflicts may be proof of intent, concealment, or self-dealing | Org charts; related-party agreements; permissions/allowlists; governance minutes | That conflicts = crime by themselves (however unmanaged conflicts elevate the danger) |
| Did governance/threat controls forestall misuse? | Weak controls elevate likelihood of loss/run; impacts creditor recoveries and supervisory findings | Weak controls can help negligence/recklessness; bypassing controls can help intent | Audit trails; risk-limit programs; exception logs; approval workflows; whistleblower/inner reviews | That “controls existed on paper” means they functioned in observe |
| Did later recoveries change the ex ante conduct? | Recoveries can change the property’s solvency story and payout math over time | Typically no: fraud evaluates conduct and intent on the time | Timeline of asset discovery/valuation revisions; litigation recoveries; VC stake monetizations | That ex publish solvency retroactively makes earlier statements true |
| Does constructive NAV negate misrepresentation? | Constructive NAV could depend upon valuation selections (haircuts, illiquid marks, disputed property) and says nothing about liquidity | No: misrepresentation can exist even when a agency may theoretically pay again later | Foundation for NAV declare; asset/legal responsibility definitions; valuation memos; trial report on representations | That “NAV constructive” means “no fraud,” or that clients confronted no real-time withdrawal threat |
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 “large gap” to “liquidity mismatch with eventual restoration.”
That shift has penalties past Bankman-Fried’s enchantment.
First, it demonstrates that proof-of-reserves with out corresponding legal responsibility disclosures and liquidity stress testing is incomplete. Exhibiting that property exist does not show that these property can meet withdrawal demand when confidence breaks.
The subsequent crypto disaster will not announce itself as insolvency. It’ll 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 regulation systematically shifts post-petition appreciation away from clients and into the property, customers internalize the danger of custody in another 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 underneath 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 stability 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 foundations have been adopted, the representations have been trustworthy, and the dangers have 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 have been misused, whether or not governance failed, or whether or not customers have been misled in regards to the security of their deposits.
The FTX case will likely be remembered not for its last 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 does not dissolve that stress. It makes it express.