Sam Bankman-Fried due in court for hearing on lawyer's possible conflict

FILE PHOTO: Former FTX Chief Executive Sam Bankman-Fried, who faces fraud charges over the collapse of the bankrupt cryptocurrency exchange, leaves the Manhattan federal court in New York City, U.S. March 30, 2023. REUTERS/Andrew Kelly/File Photo

NEW YORK (Reuters) - Sam Bankman-Fried, the jailed founder of bankrupt cryptocurrency exchange FTX, is due back in court on Wednesday for the first time since his November fraud conviction for a hearing in Manhattan over his new lawyer's possible conflict of interest.

Bankman-Fried, 31, in January hired defense lawyer Marc Mukasey to help represent him during his sentencing and likely appeal. A federal court jury found the former billionaire guilty of stealing billions of dollars from FTX customers.

Mukasey is also representing the founder of bankrupt cryptocurrency lender Celsius Networks, Alex Mashinsky, on charges of artificially inflating the value of the company's in-house crypto token and earning $42 million from selling his holdings. Mashinsky has pleaded not guilty.

In a Feb. 6 court filing, prosecutors in Bankman-Fried's case said Mukasey and his partner Torrey Young had possible conflicts of interest because Bankman-Fried's Alameda Research hedge fund used stolen FTX customer funds to repay money it had borrowed from Celsius.

"Bankman-Fried may wish to argue at sentencing or in the event of an appeal that Celsius and similar lenders were not defrauded and are not entitled to restitution," prosecutors wrote. "Celsius, and potentially Mashinsky, may take a contrary position.

They said Bankman-Fried should be allowed to continue with Mukasey as long as he understands the possible conflict.

Bankman-Fried, who has been held at Brooklyn's Metropolitan Detention Center since August 2023, is scheduled to be sentenced on March 28, and could face decades in prison.

Mukasey, a former federal prosecutor in Manhattan and the son of former U.S. Attorney General Michael Mukasey, was once part of former U.S. President Donald Trump's personal legal team.

He also represented electric- and hydrogen-powered truck maker Nikola's founder Trevor Milton, who was sentenced last year to four years after being convicted of fraud for lying to investors about the company's technology - well below the 11 years prosecutors suggested.

At Wednesday's scheduled hearing, U.S. District Judge Lewis Kaplan is expected to ask Bankman-Fried whether he would waive his right to raise objections to the possible conflict in the future. Mashinsky, 59, waived that right at a hearing on Tuesday before U.S. District Judge John Koeltl. Mukasey and Young said at that hearing that they could fairly represent both Bankman-Fried and Mashinsky.

Bankman-Fried was represented throughout his monthlong trial by Mark Cohen and Christian Everdell, who continue to represent him alongside Mukasey and Young.

Mashinsky is free on bail. His trial has been scheduled for Jan. 28, 2025.

(Reporting by Luc Cohen in New York; Editing by Will Dunham and Noeleen Walder)

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