Closely related to “misappropriation of funds” is “lying to customers.” That ends up being a lesser offense than misappropriation, but I’ll note it since it is more intrinsically immune to the “intent matters / chaos” line of defense. As one example (quoting the prosecution’s sentencing memo):
In FTX’s “safeguarding of assets & digital token management policy,” which was submitted to regulators in The Bahamas and shared with some customers, FTX stated that the company had “a responsibility to ensure that customer assets are appropriately safeguarded and segregated from its own funds.” (GX-340). That policy further stated that “customer assets (both fiat and virtual assets) are segregated from its own assets,” that “all third-party service providers are aware that customer funds do not represent property of [FTX],” and that “all third-party providers are aware that customer assets are held in trust.” (Id.).
Once you go down the path of lying to customers to induce them to give you money (and to a regulator charged with customer protection), any losses that are causally related to those fraudulent statements are on you. The chaos theory just won’t gel with an honest belief that customer assets were “appropriately safeguarded and segregated” and “held in trust.” I do consider this a lesser offense than misappropriation because the specific intent required is obtaining the money through deceit rather than affirmatively stealing it. But it’s still a very serious offense.
Closely related to “misappropriation of funds” is “lying to customers.” That ends up being a lesser offense than misappropriation, but I’ll note it since it is more intrinsically immune to the “intent matters / chaos” line of defense. As one example (quoting the prosecution’s sentencing memo):
Once you go down the path of lying to customers to induce them to give you money (and to a regulator charged with customer protection), any losses that are causally related to those fraudulent statements are on you. The chaos theory just won’t gel with an honest belief that customer assets were “appropriately safeguarded and segregated” and “held in trust.” I do consider this a lesser offense than misappropriation because the specific intent required is obtaining the money through deceit rather than affirmatively stealing it. But it’s still a very serious offense.