Crypto Could Be a Mystery to Jurors in Bankman-Fried Case

Jury selection gets under way Tuesday morning in the criminal case against Bankman-Fried, 31, who is on trial for a series of actions that allegedly led to the abrupt meltdown of the FTX crypto exchange last year.

Bankman-Fried is charged with stealing billions of dollars from customers of the FTX crypto exchange and using the money in large part to cover risky bets by its sister hedge fund, Alameda Research. The case involves some complex financial transactions, including allegations that Bankman-Fried instructed a deputy to take a big position in a digital token to manipulate its market price.

As both sides have hurtled toward trial, the case has raised questions of legal strategy: How do you teach jurors about crypto? And do you need to even teach them at all?

For prosecutors, the answer might be no.

“A big part of what the government will try to do is make this simple," said Rebecca Mermelstein, a former federal prosecutor now at firm O’Melveny & Myers. “Confusion is the friend of the defense lawyer, because if the jury can’t understand what was happening, they can’t convict."

Instead of giving the jury a crash course in crypto, the government will likely use a familiar playbook: tell a straightforward story about lying and stealing.

At a recent white-collar conference, a Justice Department lawyer supervising the prosecution said that bringing a crypto case to trial often isn’t that different from prosecuting a matter of traditional fraud. “The real question is, was the defendant making misrepresentations, was the defendant trying to deceive people?" said Scott Hartman, a lawyer in the U.S. attorney’s office for the Southern District of New York.

The key to keeping a case easy to understand is to avoid getting into the weeds on dense subjects, said Joshua Naftalis, a partner at firm Pallas Partners who tried white-collar cases as a former federal prosecutor.

The U.S. attorney’s office, he said, frequently follows a “thin to win" philosophy, meaning prosecutors don’t lard their cases up with unnecessary evidence.

When prosecutors do talk about crypto, they are likely to use analogies, such as comparing digital tokens to a share of stock, or phrases like “digital money," lawyers said.

Bankman-Fried has pleaded not guilty and denied any wrongdoing. He has acknowledged that FTX made serious mistakes but has said they weren’t criminal acts.

While prosecutors might opt for simplicity, his defense team is likely to take a different tack.

Bankman-Fried’s lawyers have said in court filings that they might delve into the complexities of crypto and the lack of clear regulations surrounding the industry, in hopes of showing jurors that their client never intended to defraud anyone. However, most of their proposed expert witnesses on those issues have been rejected by the federal judge presiding over the trial, after prosecutors challenged their relevance to the case. The judge also has limited the use of the other experts, including ones who Bankman-Fried’s lawyers said might testify about boom-and-bust markets in crypto and the coding underpinning FTX’s trading platform.

“Typically, the defense has the much more complex task of having to explain why things that look wrong aren’t really wrong or things that may look like intentional decisions really just reflect poor oversight," said Ellen Brickman, a director at trial-consulting firm DOAR, which frequently advises white-collar defendants on picking a jury and presenting their defense.

Brickman said that if Bankman-Fried’s case hinges on intent, then he might be his own best witness at trial in explaining why management mistakes weren’t crimes. The floppy-haired millennial hasn’t indicated whether he would testify, but taking the stand could backfire if he doesn’t establish credibility with jurors, Brickman said. His post-arrest behavior, from his attempts on social media to explain his actions to his alleged witness tampering, could also be used against him.

“It’s never a simple calculus," Brickman said.

While prosecutors typically don’t use jury consultants, they test their approaches on other audiences, including the grand jury, which has the opportunity to ask questions before deciding whether to issue an indictment, said Samson Enzer, who handled an early wave of crypto cases before leaving the U.S. attorney’s office in 2021. Prosecutors might also run through opening statements before an audience of office staff, including nonlawyers such as paralegals and agents, he said.

But Enzer, now at firm Cahill Gordon & Reindel, said his best audience was closer to home. “I always run what I’m going to do by my mom," he said. “If my mom gets it, a jury will get it."

Write to James Fanelli at james.fanelli@wsj.com and Corinne Ramey at corinne.ramey@wsj.com