“This case is about a company seeking to criminalize a business decision that went catastrophically wrong. When an investment failed due to massive third-party fraud, the company did not treat it as what it was—a failed investment. Instead, the company hired a former Department of Justice prosecutor to lobby federal authorities to bring criminal charges against its former CFO who made the investment. And it did so even though, as the government admits, the CFO was duped by the third-party into thinking the investment was not risky."

"Mr. Nevin Shetty served as Chief Financial Officer of Fabric, Inc., where he was entrusted with managing the company’s finances and making investment decisions on its behalf. In April 2022, Mr. Shetty invested a portion of Fabric’s funds [along with his life savings] in TerraUSD (UST), an algorithmic stablecoin, genuinely believing it to be a safe, conservative investment that would generate significant returns without risking principal. He conducted extensive research, relied on representations of what appeared to be a legitimate investment opportunity backed by sophisticated technology, documented the investment properly on the company’s books, and made the investment in what he believed was the company’s best interest. When the Terra ecosystem collapsed in May 2022 due to Do Kwon’s fraud, Mr. Shetty called a meeting with the CEO to explain what had happened."

"What followed was not a measured response to a failed investment, but rather a coordinated campaign by a company seeking to criminalize an executive’s business judgment. Fabric hired a former Department of Justice prosecutor who lobbied federal authorities to bring charges, and suggested Mr. Shetty might flee the country—none of which was true. Yet when it came time to report the loss to the IRS, Fabric classified it exactly as what it was: an investment loss."

"The funds were invested on Fabric’s behalf, remained in Fabric’s possession and control throughout, and were reflected on Fabric’s books as a company investment. Fabric employees had access and credentials to the investment account. The investment was documented in a Treasury Account Agreement signed by Mr. Shetty on behalf of Fabric. The money never left Fabric’s control—it was simply invested in a different vehicle, just as it would have been had Mr. Shetty placed it in a treasury program at Fidelity (or another financial firm). Put simply, at all times, Fabric remained in legal title and possession of their funds."

"Moreover, the government has confirmed to undersigned counsel that there is no allegation that Mr. Shetty ever converted Fabric’s $35 million principal to his own or ever planned to do so. And the government’s own trial brief confirms that, while Mr. Shetty and his partner intended to profit from Fabric’s HighTower investment through excess interest, they did not plan to obtain Fabric’s principal. The government’s trial brief acknowledges that HighTower was a legitimate going concern and “was envisioned as a decentralized finance investment platform that invested in cryptocurrency protocols such as Anchor.” (Dkt. 202 at 3.) And that Mr. Shetty and his co-founder “envisioned an investment platform that would assist customers in converting USD into cryptocurrency to then be invested through the Anchor protocol or other DeFi protocols. In a separate pleading, the government conceded that Mr. Shetty “must have believed UST was a worthwhile investment, and that his scheme would make everyone rich, or else he would not have done it.”

"The government has not identified any statute, regulation, or other law that required Mr. Shetty to make the specific disclosures it now claims were mandatory. Even assuming Mr. Shetty had some duty to disclose information to Fabric’s board, the government has never specified what facts he was required to disclose, to whom, and when. Was he required to disclose that he planned to invest in a stablecoin? That the investment would be made through HighTower? That HighTower would earn carry? The government’s vague allegations leave Mr. Shetty unable to defend against a moving target."

"Mr. Shetty’s minority ownership stake in HighTower is not criminal. Using a company in which one has a financial interest to provide services is not criminal. Earning compensation for providing investment management services is not criminal. Every self-dealing transaction involves some financial benefit flowing to the self-dealer, but self-dealing is not wire fraud. The jury must be clearly instructed that undisclosed self-dealing cannot satisfy any element of wire fraud. Without such an instruction, there is a substantial risk that the jury will convict Mr. Shetty for conduct that the Supreme Court has held is not a federal crime."

"The government wants to convict Mr. Shetty for wire fraud, but it cannot seem to decide what the fraud actually is. But it has decided its trial strategy: throw mud at the wall and hope something sticks. The centerpiece of this strategy is evidence that Mr. Shetty owned a minority stake in HighTower, the platform that invested Fabric’s money. The government plans to use this ownership evidence to “dirty up” Mr. Shetty with accusations of self dealing—even though the government has conceded that “the crime is not the self-dealing.” Given these circumstances, and the government’s shifting positions, the likelihood of jury confusion is already high."

"The sheer magnitude of the loss here creates particular risks. Jurors confronted with evidence that an employer lost $35 million may feel compelled to hold someone accountable for that loss, even if the government has not proven the elements of wire fraud. But evidence of poor investment performance inevitably invites jurors to convict based on the theory that Shetty was a bad investor or made poor business decisions—conduct that may be grounds for termination or civil liability but not federal criminal liability."

"The jury could easily be swayed by the natural tendency to rely on hindsight bias rather than examining the evidence of Shetty’s state of mind at the time he made the transfer—which is the only proper way to evaluate his intent. In addition, jurors may instinctively assume that large financial losses indicate wrongdoing, even when the loss has no logical connection to the defendant’s mental state. This natural but erroneous assumption would lead jurors to conclude that because the investment failed, Shetty must have acted with fraudulent intent—a conclusion that does not follow from the evidence and conflates investment acumen with criminal intent."

"Individual board members’ personal opinions about cryptocurrency, their own investment preferences, their own views of Shetty’s specific investment decisions, and their interpretation of corporate policies—including those tainted by hindsight—are irrelevant to any viable fraud theory and would unfairly prejudice Shetty by inviting the jury to equate personal opinions and corporate policy disagreements with criminal intent."