U.S. says FTX founder Bankman-Fried needs limits on communications, asset access

FILE PHOTO: Former FTX Chief Executive Sam Bankman-Fried, who faces fraud charges over the collapse of the bankrupt cryptocurrency exchange, arrives on the day of a hearing at Manhattan federal court in New York City, U.S. January 3, 2023. REUTERS/David Dee Delgado/File Photo

NEW YORK (Reuters) - The U.S. government on Monday urged a judge to reject Sam Bankman-Fried's claim it went too far by insisting that the indicted founder of the now-bankrupt FTX cryptocurrency exchange be banned from contacting his former colleagues.

In a letter to U.S. District Judge Lewis Kaplan in Manhattan, prosecutors also asked that a bail condition that prevents Bankman-Fried from accessing or transferring assets at FTX and his Alameda Research hedge fund be left in place.

They argued those assets were "vulnerable to exploitation and in need of protection from the defendant."

The requests came two days after Bankman-Fried's lawyers proposed letting their client access crypto assets and continue communicating with most of FTX's and Alameda's estimated 350 employees, some of whom they said could help his defense.

Mark Cohen and Christian Everdell, who represent Bankman-Fried, did not immediately respond to requests for comment. They have until Feb. 1 to address prosecutors' view on accessing assets.

Bankman-Fried, 30, has been free on $250 million bond and confined at his parents' home in California, after pleading not guilty to fraud for allegedly looting billions of customer dollars from FTX.

Prosecutors previously raised concerns about witness tampering after Bankman-Fried on Jan. 15 sent an encrypted message over the Signal app to an FTX affiliate's general counsel, who could testify against him at a trial set to begin in October.

"I would really love to reconnect and see if there's a way for us to have a constructive relationship, use each other as resources when possible, or at least vet things with each other," Bankman-Fried had written.

In Monday's letter, prosecutors called the message an effort to "improperly influence" the general counsel, no matter how benign it might seem.

"The defendant's position of authority with respect to his former employees, combined with his recent outreach to a former employee about the case, raises a sufficient specter of witness tampering," prosecutors said.

Prosecutors also want to ban Bankman-Fried from using apps such as Signal that let users auto-delete messages, and instead have him communicate in text messages, emails and phone calls.

Bankman-Fried's lawyers have said their client was trying simply to provide assistance to the general counsel, and has not been not using the auto-delete feature.

They also proposed that Bankman-Fried not be allowed to talk with select colleagues, including former Alameda chief Caroline Ellison, former FTX technology chief Zixiao "Gary" Wang and former FTX engineering chief Nishad Singh.

Ellison and Wang have pleaded guilty and are cooperating with prosecutors.

(Reporting by Jonathan Stempel in New York; Editing by Anna Driver)

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