When the judge overseeing Sam Bankman-Fried’s FTX fraud case last week questioned whether restrictions on the defendant’s use of Signal were enough to safeguard communications, it was the latest instance in which a messaging app has come under scrutiny because of the ease with which users can hide texts.
As part of the $250 million bail package of the former crypto exchange chief, prosecutors and defense counsel agreed to restrict Bankman-Fried’s use of Signal, which uses encryption to keep communications secure and can be configured to delete messages automatically.
Judge Lewis Kaplan of the U.S. District Court of the Southern District of New York, at a bail hearing for the defendant last week, said he wanted defense counsel to give him more information on how they can assure Bankman-Fried’s communications are preserved while he prepares for trial on his role in the crypto exchange’s collapse.
Prosecutors and defense counsel agreed to restrict easily hidden messaging apps like Signal while allowing him to use Zoom and FaceTime, as well as other standard texting and emailing apps that can more easily be archived.
In a CNN report, defense counsel said they’ve identified a company that makes a compliance application that automatically archives messages.
The app wasn’t identified in the report but a number of companies make an automated archiving app. Among them are PageFreezer, Mimecast and Commvault.
Concern over the use of the Signal messaging app flared up in early February when prosecutors raised concerns over witness-tampering when Bankman-Fried sent a message to “Witness 1,” identified in a CNBC report as FTX’s general counsel Ryne Miller.
“I know it’s been a while since we’ve talked,” Bankman-Fried reportedly said in the message. “And I know things have ended up on the wrong foot. 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. I’d love to get on a phone call sometime soon and chat.”
Defense counsel said the message was benign but Kaplan said the message appears to be an invitation for the two to align views. “In perhaps more colloquial terms,” Kaplan said, “it appears to have been an effort to have both the defendant and Witness-1 sing out of the same hymn book.”
Apps lead to $2 billion in fines
Signal and another messaging app, WhatsApp, were similarly the focus of archival and retrieval concerns in late January when banks, after being hit with fines in the hundreds of millions of dollars for their employees’ use of the apps, sought to claw back the money from their employees.
Because of the ease with which messages exchanged using the apps can be hidden or made hard to access after being deleted, they’re prohibited under record-retention rules of federal securities law.
About a dozen banks were fined a total of $2 billion by the Securities and Exchange Commission and the Commodity Futures Trading Commission last year. The two banks with the highest fines, JP Morgan and Morgan Stanley, applied their clawback policies to the employees to get some of that money back.
Employees facing clawbacks include executives and subordinates who in some cases used the apps with the knowledge of higher-ups despite widespread awareness they were prohibited by law.
The incidents show prosecutors, regulators and counsel are still playing catch-up with messaging technology as its use outpaces efforts to preserve communications for legal record-keeping.