Bankman-Fried’s Prosecutors Raise New Concerns Over Internet Use

Peter Blumberg, Bloomberg News

Sam Bankman-Fried, co-founder of FTX Cryptocurrency Derivatives Exchange, center, departs court in New York, US, on Tuesday, Jan. 3, 2023. Bankman-Fried pleaded not guilty to criminal charges Tuesday and is set to face a trial in October, a courtroom showdown likely to be one of the highest-profile white-collar fraud cases in recent years. Photographer: Jeenah Moon/Bloomberg , Bloomberg

(Bloomberg) -- US prosecutors said their discovery that Sam Bankman-Fried used a virtual private network to access the internet on two recent occasions raises concerns that the FTX co-founder could be hiding his online activities.

The Manhattan judge handling Bankman-Fried’s criminal fraud case last week expressed his own concerns that even if the defendant is barred from using encrypted messaging apps like Signal, he could still use old-fashioned secret code to contact witnesses in the case, similar to letters penned by Mary, Queen of Scots, more than 400 years ago.

US District Judge Lewis Kaplan refused on Feb. 9 to approve an agreement negotiated between prosecutors and Bankman-Fried that would have required him to stop using Signal and certain other apps and to only contact a specific set of former and current FTX employees, while preserving his right to use WhatsApp with monitoring technology, iMessage and also make Zoom and FaceTime calls.

In a letter to the judge late Monday, a prosecutor in the office of the Manhattan US attorney said the government is discussing with lawyers for Bankman-Fried how to fashion internet ground rules acceptable to both sides and the court.

“As defense counsel has pointed out, and the government does not dispute, many individuals use a VPN for benign purposes,” Assistant US Attorney Danielle Sassoon wrote. “In the government’s view, however, the use of a VPN raises several potential concerns.”

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A VPN is a mechanism of encryption that hides online activities from third parties and disguises a user’s whereabouts, Sassoon wrote, adding that such networks provide access to international cryptocurrency exchanges, allow data transfers without detection and offer a covert method of getting onto the dark web.

The defense team has said that Bankman-Fried won’t use a VPN while discussions continue, the prosecutor told the judge.

Bankman-Fried has been living at his parents’ house in Palo Alto, California, after being released from custody in December on a $250 million bail package. He is accused of committing a yearslong fraud at FTX and allowing customer funds to be used for trading at affiliated hedge fund Alameda Research and for personal expenses.

The case is US v. Bankman-Fried, 22-cr-673, US District Court, Southern District of New York (Manhattan).