As trial begins, Sam Bankman-Fried's lawyers push to exclude testimony from FTX users

Sam Bankman-Fried's legal team has requested the court block certain witnesses offering testimony on how they thought FTX would protect their assets.

The criminal trial of former FTX CEO Sam Bankman-Fried (SBF) is currently underway in New York, and his legal team has filed motions aiming to ban testimony from users and investors in the exchange.

In separate Oct. 2 filings in United States District Court for the Southern District of New York, SBF’s lawyers opposed pre-trial motions from prosecutors requesting FTX customers and investors testify regarding how they believed the cryptocurrency exchange would handle assets. They also sought to block the testimony of a former FTX user — an unnamed Ukrainian national — using a “live two-way video” partly on Sixth Amendment grounds.

“Decisions on specific testimony from specific witnesses relating to their individual understanding of specific statements or aspects of their relationship with FTX or Mr. Bankman-Fried cannot be decided in the abstract,” said the filing on FTX user testimony.

According to SBF’s legal team, prosecutors were trying to “have it both ways” by blocking similar witnesses proposed by the defense as to what they understood about how FTX would handle their funds. Defense lawyers described the motion as "premature", arguing the subject was a matter for the jury to evaluate.

“[T]he Government seemingly wants evidence regarding how customers (and other putative victims) understood the relationship they chose to enter with FTX to be admissible only if offered by the Government but excluded if offered by the defense.”

Lawyers also argued allowing the Ukrainian witness’ testimony “would apparently reference hardships and individual circumstances created by the Russian invasion of Ukraine” and “elicit the jury’s sympathy and outrage”. The Russian military invaded Ukraine in February 2022 and many areas of the country have faced the constant threat of attack since that time, making international travel difficult.

“Courts routinely exclude relevant evidence that might elicit sympathy among jurors unrelated to the facts of the case,” said the lawyers. “[T]he circumstances under which [the Ukrainian user] would testify and the reason for his absence from the courtroom would themselves be prejudicial [...] Jurors would inevitably speculate about why a Ukrainian national (and no other witness) is testifying by video, and the most obvious answers would almost certainly provoke ‘sympathies having no bearing on the merits of the case.’”

Related: DOJ readies witnesses in Bankman-Fried trial, highlights FTX asset management

The motions were filed hours before jury selection for Bankman-Fried’s criminal trial was scheduled to begin in New York City. At the time of publication, Judge Lewis Kaplan was questioning potential jurors on any conflicts they may have which prevent them from serving in the trial, expected to last through November.

Since Kaplan revoked Bankman-Fried's bail in August, the former FTX CEO has been largely confined to jail despite several unsuccessful attempts by his lawyers for temporary release. He will face two criminal trials in October 2023 and March 2024, for which he has pleaded not guilty to all 12 criminal charges related to alleged fraud at FTX and Alameda Research.

Magazine: Can you trust crypto exchanges after the collapse of FTX?

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Binance to shut down BUSD lending by October 25

The move is part of a phased termination of BUSD support by February 2024.

Crypto exchange Binance will cease borrowing and lending services for its native stablecoin Binance USD (BUSD) by October 25.

According to the October 3 announcement, the exchange will close all outstanding BUSD loan and collateral positions by the end of the month. Users would still be able to borrow and lend on Binance using stablecoins such as Tether (USDT), Dai, TrueUSD (TUSD), and USD Coin (USDC). Currently, users can lend their BUSD on Binance at an estimated annual percentage yield of 3%. 

On August 31, Cointelegraph reported that Binance will cease all services related to its BUSD stablecoin by 2024. Previously, on February 13, New York fintech firm Paxos, the issuer of the BUSD stablecoin, said it would end relations with Binance due to the latter's ongoing litigation with the U.S. Securities and Exchange Commission. Paxos said it would end redemptions from BUSD to underlying U.S. cash and Treasuries in February 2024, with new minting of BUSD halted for the time being. 

Before the termination announcement, BUSD was one of the largest stablecoins, reaching a peak market capitalization of $23 billion in November 2022. It has since fallen to $2.23 billion at the time of publication.

The termination of BUSD and related services has occurred in phases. Last month, the exchange suspended BUSD withdrawals via BNB Chain, Avalanche, Polygon, Tron and Optimism but left them open on the Ethereum network. BUSD deposits, on the other hand, remain open across all blockchains, with the exchange urging users to convert their BUSD balances into fiat or other crypto by next year. 

FYI: Binance will stop BUSD in 2024

According to an official announcement on crypto exchange Binance’s app, the exchange pops up a notification for users that they will stop supporting BUSD in 2024.

This is an elignment with Paxos phase out for purchasing BUSD by February… pic.twitter.com/XiRPy71b3p

— Nu Brave (@NuBraveIN) August 30, 2023

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Book describes Sam Bankman-Fried with little attention span or respect for appointments

The former FTX CEO was reportedly invited by Vogue editor-in-chief Anna Wintour to be her special guest at the Met Gala, only to cancel at the last minute.

Michael Lewis, author of The Big Short, has painted an interesting picture of Sam Bankman-Fried (SBF) in his soon-to-be released book on the former FTX CEO.

In an excerpt of Going Infinite: The Rise and Fall of a New Tycoon published in the Washington Post on Oct. 1, Lewis described several interactions Bankman-Fried had with the media and influential figures prior to the downfall of FTX and his criminal charges in the United States. According to the author, he would frequently play video games in the background of online interviews — his League of Legends exploits are well reported — often giving little attention to people including Vogue editor-in-chief Anna Wintour.

“Sam didn’t want to seem rude,” said Lewis on SBF’s talk with Wintour. “It was just that he needed to be playing this other game at the same time as whatever game he had going in real life. His new social role as the world’s most interesting new child billionaire required him to do all kinds of dumb stuff. He needed something, other than what he was expected to be thinking about, to occupy his mind.”

At one point, Sam Bankman-Fried was worth $22.5 billion.
No one but Mark Zuckerberg had become richer faster.

Then his crypto empire collapsed.

Michael Lewis was there for the rise and fall. Read an exclusive excerpt from his book on SBF's last year: https://t.co/ie7rn8ZdSe pic.twitter.com/hkPwuT0H8B

— Washington Post Opinions (@PostOpinions) October 2, 2023

Lewis added that Natalie Tien, who moved into the role of FTX’s head of public relations and SBF’s “personal scheduler”, said the former CEO cancelled many highly publicized appearances — often at the last minute — for seemingly no reason at all. The Wintour interview reportedly led to FTX's sponsorship and Bankman-Fried as a special guest at the Met Gala, which he ended up snubbing.

“Sam treated everything on his schedule as optional,” said the book. “The schedule was less a plan than a theory. When people asked Sam for his time, they assumed they’d posed a yes or no question [...] All he had done, when he said yes, was to assign some non-zero probability to the proposed use of his time. The dial would swing wildly as he calculated and recalculated the expected value of each commitment, right up until the moment he honored it or didn’t.”

Other in-person showings by Bankman-Fried included testifying before the U.S. House Financial Services Committee in December 2021 and meeting with Senator Mitch McConnell. The appearances marked some of the rare times SBF appeared in public wearing a suit as opposed to his usual T-shirt and shorts — though social media users pointed to footage of the then CEO's shoes slipped on without being tied at the hearing.

Related: Sam Bankman-Fried FTX trial — 5 things you need to know

It’s unclear what other information will become available once the book is released on Oct. 3, the same day jury selection begins for SBF’s criminal trial in New York. Amid the expected court proceedings, a slew of podcasts, news features, books, and other media have been released detailing aspects of Bankman-Fried’s life before and after the downfall of FTX. A 60 Minutes interview with Lewis revealed SBF had plans to pay off former U.S. President Donald Trump not to run for the office again based on the threat to elections and democracy as a whole.

On Oct. 4, Bankman-Fried will appear in a New York courtroom for the first day of his trial, scheduled to run through November. He will face 7 charges related to fraud at FTX and Alameda Research, for which he has pleaded not guilty.

Magazine: Can you trust crypto exchanges after the collapse of FTX?

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SEC continues to delay decisions on crypto ETFs: Law Decoded

The latest delays came two weeks before the second deadline for many applicants.

Despite United States Representatives Mike Flood, Wiley Nickel, Tom Emmer and Ritchie Torres calling on the Securities and Exchange Commission (SEC) to immediately approve the listing of spot Bitcoin (BTC) exchange-traded funds (ETFs), the agency once again delayed its decision. 

When it comes to spot Ether (ETH) ETFs from VanEck and ARK 21Shares, the SEC delayed making decisions until Dec. 25 and Jan. 10, respectively, while GlobalX will have to wait until Nov. 21 for the commission’s decision. It also delayed deciding on the spot Bitcoin ETF applications of Invesco, Bitwise and Valkyrie until mid-January.

The latest delays came two weeks earlier than the scheduled second deadline date for many applicants, who had been expecting to hear from the securities regulator by Oct. 16–19. The timing of the delays may have been related to the narrowly avoided U.S. government shutdown, which would have disrupted the country’s financial regulators and other federal agencies.

Bitwise Asset Management reacted to the delay of its spot Bitcoin ETF with an amended application, responding to the SEC’s objections to the product. In its amended application, Bitwise engaged with what the SEC called “the ‘mixed’ or ‘inconclusive’ academic record” on the lead-lag relationship between BTC futures and spot markets.

Another Chinese court recognized Bitcoin as property 

The Shanghai No.2 Intermediate People’s Court in China has recognized Bitcoin as a unique and non-replicable digital asset while acknowledging its scarcity and inherent value. According to the court’s report, digital currencies such as Bitcoin stand out as unique and non-replicable internet technology products. The report states that among a sea of digital currencies, Bitcoin is different and unique from other digital assets. It has key currency features such as scalability, ease of circulation, storage and payment. 

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Taiwan bans unregistered foreign crypto exchanges

Taiwan’s Financial Supervisory Commission (FSC) formulated the critical points for regulating Taiwan’s cryptocurrency market, releasing industry guidelines for virtual asset service providers (VASP) operating in the country. In the guidelines, the authority mentioned standard industry-wide rules like separating exchange treasury assets from customer assets and reviewing mechanisms for listing and delisting virtual assets.

The FSC also required foreign VASPs to refrain from providing their services in Taiwan without obtaining necessary approvals from the regulator: Overseas virtual asset platform operators are not allowed to provide business within the territory of the country [...] unless they have been registered in accordance with the law.”

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Hong Kong will list “suspicious” crypto platforms

The Securities and Futures Commission (SFC) of Hong Kong will publish a list of all licensed, deemed licensed, closing down, and application-pending virtual asset trading platforms (VATPs) to better help members of the public identify potentially unregulated VATPs doing business in Hong Kong. The SFC said it will also keep a dedicated list of “suspicious VATPs,” featured in an easily accessible and prominent part of the regulators’ website.

The new rules come immediately after the ongoing JPEX crypto exchange scandal, an affair that local media outlets describe as one of the worst cases of financial fraud ever to hit the region. JPEX stands accused of promoting its services to Hong Kong residents despite not having applied for a license in the country.

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Researchers find LLMs like ChatGPT output sensitive data even after it’s been ‘deleted’

According to the scientists, there’s no universal method by which data can be deleted from a pretrained large language model.

A trio of scientists from the University of North Carolina, Chapel Hill recently published preprint artificial intelligence (AI) research showcasing how difficult it is to remove sensitive data from large language models (LLMs) such as OpenAI’s ChatGPT and Google’s Bard. 

According to the researchers' paper, the task of “deleting” information from LLMs is possible, but it’s just as difficult to verify the information has been removed as it is to actually remove it.

The reason for this has to do with how LLMs are engineered and trained. The models are pretrained on databases and then fine-tuned to generate coherent outputs (GPT stands for “generative pretrained transformer”).

Once a model is trained, its creators cannot, for example, go back into the database and delete specific files in order to prohibit the model from outputting related results. Essentially, all the information a model is trained on exists somewhere inside its weights and parameters where they’re undefinable without actually generating outputs. This is the “black box” of AI.

A problem arises when LLMs trained on massive datasets output sensitive information such as personally identifiable information, financial records, or other potentially harmful and unwanted outputs.

Related: Microsoft to form nuclear power team to support AI: Report

In a hypothetical situation where an LLM was trained on sensitive banking information, for example, there’s typically no way for the AI’s creator to find those files and delete them. Instead, AI devs use guardrails such as hard-coded prompts that inhibit specific behaviors or reinforcement learning from human feedback (RLHF).

In an RLHF paradigm, human assessors engage models with the purpose of eliciting both wanted and unwanted behaviors. When the models’ outputs are desirable, they receive feedback that tunes the model toward that behavior. And when outputs demonstrate unwanted behavior, they receive feedback designed to limit such behavior in future outputs.

Despite being “deleted” from a model's weights, the word “Spain” can still be conjured using reworded prompts. Image source: Patil, et. al., 2023

However, as the UNC researchers point out, this method relies on humans finding all the flaws a model might exhibit, and even when successful, it still doesn’t “delete” the information from the model.

Per the team’s research paper:

“A possibly deeper shortcoming of RLHF is that a model may still know the sensitive information. While there is much debate about what models truly ‘know’ it seems problematic for a model to, e.g., be able to describe how to make a bioweapon but merely refrain from answering questions about how to do this.”

Ultimately, the UNC researchers concluded that even state-of-the-art model editing methods, such as Rank-One Model Editing “fail to fully delete factual information from LLMs, as facts can still be extracted 38% of the time by whitebox attacks and 29% of the time by blackbox attacks.”

The model the team used to conduct their research is called GPT-J. While GPT-3.5, one of the base models that power ChatGPT, was fine-tuned with 170 billion parameters, GPT-J only has 6 billion.

Ostensibly, this means the problem of finding and eliminating unwanted data in an LLM such as GPT-3.5 is exponentially more difficult than doing so in a smaller model.

The researchers were able to develop new defense methods to protect LLMs from some “extraction attacks” — purposeful attempts by bad actors to use prompting to circumvent a model’s guardrails in order to make it output sensitive information

However, as the researchers write, “the problem of deleting sensitive information may be one where defense methods are always playing catch-up to new attack methods.”

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Why is the crypto market up today?

The crypto market is up today as the US government avoids a shutdown and spot Bitcoin volumes surge.

The crypto market is up today and Bitcoin (BTC), Ether (ETH), XRP (XRP), Cardano (ADA) and numerous altcoins rallied to start the month of October. Crypto and equities markets responded positively to the United States’ temporary aversion to a government shutdown, bringing the total crypto market cap up $3.7 billion to $1.1 trillion on Oct. 2.

Crypto market 1-day price action. Source: Coin360

Related: Are DAOs overhyped and unworkable? Lessons from the front lines

Let’s examine three of the major factors influencing today’s crypto market rally.

Uptober is off to a solid start

October has historically been celebrated as “Uptober” due to the positive returns in the crypto market. Bitcoin and crypto market prices rallied 5% to over $28,500.

The seasonality of Bitcoin’s returns in October has remained positive, only failing to achieve gains 3 times in the month. With such a strong history, this makes October statistically one of the strongest months for Bitcoin price gains.

Bitcoin returns by month. Source: Look Into Bitcoin

A strong October is much needed after the third quarter of 2023 equated to $700 million in losses due to a variety of hacks.

Crypto liquidations rule the day

The crypto market rally started on Oct. 1 and fueled a wave of short position liquidations across the market, totaling over $92 million in 24-hours. Bitcoin short liquidations lead the way with the largest single liquidation of $8.39 million in one transaction on the Huobi exchange. In total, $51.5 million in Bitcoin shorts have been liquidated in 24-hours.

Total crypto liquidations in 1-day. Source: Coinglass

Despite the short-seller losing streak, 50.5% of the futures market remains short. With the ratio remaining skewed short, a potential opportunity for a short-squeeze could happen and lead to further price upside.

Bitcoin short vs. long ratio. Source: Coinglass

Macro factors could benefit the crypto market

The U.S. government averting a shutdown on Sept. 30, may have helped the initial Oct. 1 crypto price pump which quickly wiped out $70 million in shorts.

Despite the Securities and Exchange Commission (SEC) refusing to approve a Bitcoin ETF and their continued war on the crypto market, large institutions remain interested in the space.

Related: BTC price knocks on $28.5K as trader says Bitcoin ‘reeks of disbelief’

Such interest has led VanEck and Bitwise to both launch Ethereum ETFs on Oct. 2. The Bitwise ETF will launch on the Chicago Mercantile Exchange (CME) and the VankEck Ether ETF will launch on the Chicago Board Options Exchange (CBOE).

While Bitcoin and altcoins still have overhanging risk events that could impact the price, the growing institutional interest is improving sentiment across the market. The Bitcoin Fear & Greed Index highlights the improved sentiment, noting an 11-point increase over the last month.

Bitcoin Fear & Greed Index. Source: Alternative.me

Overall, crypto markets are likely to continue to experience price volatility. While the positive start to October is providing a nice short-term bump in crypto prices, the market’s reaction to any new enforcement actions or an economic recession will be the true determinant of the direction the market chooses to take.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

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Parliamentary committee calls for shutdown of Worldcoin in Kenya

The committee’s recommendations included having the Kenyan government consider implementing a comprehensive framework for digital assets and virtual asset service providers.

A parliamentary committee in Kenya’s government tasked with investigating Worldcoin has recommended that regulators shut down the project’s operations in the country.

According to a report released on Sept. 30 by Kenya’s parliament, Worldcoin has continued to collect personal data of Kenya’s residents “in total disregard” of an order to stop issued in May — potentially including information from minors. The committee recommended that Kenyan authorities “disable the virtual platforms” of Worldcoin as well as investigate its companies for potential criminal charges.

"The registration of Kenyans by Worldcoin online App is still going on despite the pendency of a court order and other administrative directions halting the same in entirety,” said the report.

Sept. 27 parliamentary report on Worldcoin's activities in Kenya: Source

The report cited privacy concerns for Kenya’s residents, but added it was difficult or impossible to determine the number of ‘orbs’ in the country — the devices the Worldcoin project uses to allow users to submit scans of their irises for verification. The committee’s recommendations included having the government consider implementing a comprehensive framework for digital assets and virtual asset service providers in Kenya, as well as amend existing regulations to consider cybercrimes and tax reporting requirements. 

Lawmakers added:

“The unregulated adoption and use of cryptocurrency as an attempt to fully decentralize the global monetary systems, poses threat to statehood.”

Related: Worldcoin launch sparks debate over data privacy and future of AI

Worldcoin, launched with the stated intention of distinguishing real people from bots online by providing retinal scans for identity verification, had millions of sign-ups by July. However, the project has drawn the scrutiny of regulators globally who claim it is circumventing regulations and guidelines on data protection and user privacy.

Authorities in Germany, Argentina, France and the United Kingdom have either raised concerns about Worldcoin or launched inquiries into its activities. Cointelegraph reached out to Worldcoin, but did not receive a response at the time of publication.

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