The Second Circuit Court of Appeals has definitively rejected Sam Bankman-Fried's central defense argument that FTX customers could eventually recover their funds if Alameda Research's investments had continued appreciating. According to Reuters, the appeals court ruled that "temporary misappropriation" of customer assets still constitutes fraud, citing the Supreme Court's 2025 Kousisis decision which states that federal fraud law does not require proof of permanent financial loss. The court specifically rejected Bankman-Fried's contention that he was prevented from presenting all legal arguments and arguing that FTX's investments would eventually grow, stating that "any contention that Bankman-Fried lacked an intent to defraud because he intended to eventually repay his customers was legally misleading and prejudicial." Writing for the panel, Circuit Judge Barrington Parker stated that the evidence presented by federal prosecutors was "conservatively stated, robust" and supported the jury's findings, with the ruling stating that FTX customers were defrauded once their funds were transferred to Alameda Research, irrespective of any later belief that the money could eventually be returned.
Defense lawyers had argued that U.S. District Judge Lewis Kaplan improperly excluded evidence showing FTX was solvent and could meet customer withdrawals. According to Reuters, the appeals court panel rejected this argument, stating that "Bankman-Fried makes these arguments in the face of a trial at which the government's evidence against him was, conservatively stated, robust." The court specifically addressed Bankman-Fried's argument that misappropriated funds were in investments that would eventually grow, ruling that "any contention that Bankman-Fried lacked an intent to defraud because he intended to eventually repay his customers was legally misleading and prejudicial." At trial, Bankman-Fried acknowledged management mistakes at FTX but denied stealing customer funds and had pleaded not guilty to all charges. Defense attorney Alexandra Shapiro told the appellate panel in November 2025 that "Mr. Bankman-Fried's trial was fundamentally unfair because the jury only got to hear one side of the story," but prosecutors countered that Kaplan's ruling was correct: fraud charges hinge on misappropriation, not on the possibility that assets could have covered liabilities under different circumstances.
The appeals court panel addressed several critical defense arguments raised by Bankman-Fried's legal team. As reported by Reuters, the court rejected his claim that **FTX was a margin futures trading platform, stating "We are unpersuaded. The fact that some FTX customers opted into margin trading, and thus temporary deprivation of their money, is beside the point. Some opted into margin trading, some did not. No one opted into having their money transferred under false pretenses to Alameda." The panel also reiterated that "whether the assets purchased by Bankman-Fried appreciated in value is irrelevant as to whether he committed fraud." Judge Kaplan had described the fraud as a 'very bad bet' on not getting caught, with the jury convicting Bankman-Fried in November 2023 after less than five hours of deliberation. The ruling stated that while Bankman-Fried publicly assured customers, investors and regulators that customer assets were secure, he was at the same time using FTX funds for personal expenditures, political donations, investments and real estate purchases.
The timing of the ruling could significantly complicate any future political effort to seek clemency for Bankman-Fried. According to Reuters, the appeals court ruling lands just weeks after Bankman-Fried also filed a formal clemency petition with the DOJ's Office of the Pardon Attorney, requesting a presidential pardon from Donald Trump. The application is listed as a "pardon after completion of sentence" — not a commutation — and Trump has said publicly he will not grant it. The court also upheld the approximately $11 billion forfeiture judgment despite acknowledging that many customers may eventually recover substantial portions of their losses through the bankruptcy process. Bankman-Fried is currently serving his sentence at a low-security federal prison near Santa Barbara, California, with a projected release date in 2044. Further appeals to the full Second Circuit or Supreme Court are possible but face steep odds, with his legal options now narrowing to a habeas petition with a lower success rate than direct appeals.
FTX's 2022 collapse erased billions in value and intensified regulatory scrutiny across digital assets. As reported by Reuters, while bankruptcy proceedings have enabled substantial customer recoveries, the case remains a cautionary tale about risks in centralized crypto platforms. The exchange, once valued at $32 billion, collapsed in November 2022 once it was exposed that the balance sheet of Alameda Research — Bankman-Fried's affiliated hedge fund — was built on FTX's own exchange token rather than independent assets. The disclosure triggered a customer run that ripped open an $8 billion hole in FTX's accounts. The decision reinforces the need for proper governance and compliance measures in the cryptocurrency industry, with the case having shook institutional confidence in crypto markets, triggered congressional hearings, and forced exchanges across the industry to overhaul proof-of-reserves practices. In a prison interview with Fox Business this month, Bankman-Fried maintained his position: "I didn't steal user funds" and pointed to the FTX bankruptcy estate's recovery of crypto assets, which have allowed the estate to pay creditors more than 100 cents on the dollar.
