In the case of Nevin Shetty, a former CFO indicted on wire fraud charges, defense attorneys and legal experts alike argue that the prosecution’s approach raises fundamental questions about due process, presumption of innocence, and prosecutorial discretion. Shetty has been charged with wire fraud after allegedly investing $35 million of company funds in a stablecoin cryptocurrency treasury account with a business in which he held an interest. Legal scholars agree that this prosecution oversteps the bounds of due process and misinterprets federal fraud statutes.
The stakes in this case are high, not only for Shetty but for the criminal justice system at large. The government’s case, which leans heavily on inferences about Shetty’s intentions and his knowledge of company policy, illustrates potential issues with prosecutorial overreach and disregarding core principles that protect individuals against unfair criminal liability. At its core, this case presents a pivotal test of whether the presumption of innocence can withstand prosecutorial theories that stretch the bounds of established law.
A Case Built on Inference Rather Than Evidence
Shetty’s indictment alleges that he deliberately withheld information from Fabric’s board of directors regarding the nature of the investment and his ownership interest in HighTower Treasury. According to the prosecution, Shetty’s intent was to benefit his personal venture by leveraging Fabric’s funds. However, the government has yet to provide direct evidence of Shetty’s alleged intent to defraud. The government does not say Shetty stole, embezzled, or used the funds for personal use. The government made it clear that Shetty invested $35M in the benefit of Fabric and HighTower. Instead, it relies on inferences about what Shetty must have known as CFO and how his alleged nondisclosure might have affected Fabric’s decision-making.
This reliance on inferred intent rather than direct evidence raises important due process concerns. As a foundational principle of criminal law, due process mandates that individuals are presumed innocent until proven guilty beyond a reasonable doubt. By relying heavily on presumptions of Shetty’s knowledge and intentions, the prosecution risks undermining this presumption of innocence, essentially asking the court to assume Shetty’s guilt based on circumstantial evidence. Legal analysts argue that this approach places an undue burden on Shetty to disprove the government’s case, effectively flipping the burden of proof in a way that runs counter to established constitutional protections.
The Withholding of Potentially Exculpatory Evidence
Adding further complexity, Shetty’s defense has repeatedly petitioned the court for evidence under the Brady doctrine, which requires the prosecution to disclose any material that could exonerate the defendant. Specifically, Shetty’s counsel has sought information from the government’s separate case against Terraform Labs, the cryptocurrency firm behind the TerraUSD coin in which Fabric’s funds were invested. Prosecutors in the Terraform case have publicly stated that Terraform’s founder, Do Kwon, engaged in deception about the coin’s stability and misled investors regarding its safety. Shetty’s defense argues that this evidence could substantiate his position that he, too, believed TerraUSD was a safe investment.
In response, the government has refused to provide this evidence, contending that the DOJ’s case against Do Kwon is handled by a different team in a different district and is thus outside the scope of Shetty’s case. However, legal experts contend that such arguments misinterpret the Brady rule, which requires the government as a whole — not just individual prosecutors in one case — to disclose any exculpatory material within its reach. Failing to disclose evidence from related cases not only jeopardizes the defendant’s right to a fair trial but also undermines the judiciary’s role as a check on prosecutorial power.
Withholding potentially exculpatory evidence can infringe upon an accused person’s constitutional right to a fair trial. In Brady v. Maryland (1963), the Supreme Court established that due process requires prosecutors to disclose any evidence that could potentially exonerate the defendant or reduce their culpability. By refusing to disclose information from the Terraform case, the prosecutors in this case risk obstructing Shetty’s defense and violating Brady’s clear mandate. This refusal has led many to question whether Shetty’s case truly meets the standard of fairness that the Constitution promises.
Presumption of Innocence Under Threat
The Shetty case also raises concerns about the erosion of the presumption of innocence, especially when charges hinge on inferred motivations rather than concrete actions. In this case, the government’s assertion that Shetty “knowingly defied” company policy and chose an “extremely high-risk” investment vehicle rests on the assumption that he was aware of the risks and deliberately concealed them to benefit himself. However, Shetty’s defense points out that this interpretation is based largely on hindsight bias, drawing conclusions from the eventual collapse of the TerraUSD coin rather than Shetty’s knowledge at the time of the investment.
This approach invites questions about whether the prosecution has crossed a line by assuming guilt based on the unfavorable outcome of the investment. Legal commentators caution that allowing such cases to proceed without substantial evidence of intent risks criminalizing poor business judgment, effectively conflating an executive’s failed business decision with fraud. If accepted, this could set a troubling precedent in which financial loss alone becomes grounds for criminal prosecution, even absent intent to deceive or deprive another of property.
In his defense filings, Shetty’s counsel emphasized that prosecutors have produced no evidence suggesting Shetty intended to deprive Fabric of property or that he knew the investment was inherently dangerous. Instead, they argue that Shetty believed in good faith that TerraUSD was a safe investment, an argument bolstered by public assurances made by Terraform Labs and its founder. Thus, presuming Shetty’s intent to defraud based on the mere fact of his ownership in HighTower arguably defies the presumption of innocence, substituting speculation for proof.
A Legal Theory at Odds with Supreme Court Precedent
The Shetty case exemplifies an expansion of federal fraud statutes that may exceed established judicial boundaries. The prosecution’s primary argument rests on the “right to control” theory, asserting that Shetty deprived Fabric of its right to make informed economic decisions. However, in Ciminelli v. United States (2023), the Supreme Court rejected the “right to control” as a valid basis for fraud charges, concluding that fraud statutes apply only to tangible property or money, not information or decision-making authority.
If Shetty’s case proceeds on a theory the Supreme Court has rejected, it raises serious questions about adherence to precedent and consistency within the justice system. Allowing the right to control theory to serve as the foundation for fraud charges in Shetty’s case, despite the Court’s clear guidance, risks setting an arbitrary standard for criminal liability. Legal scholars warn that this could lead to an environment where prosecutors use inconsistent standards to target business executives, selectively applying legal theories in ways that erode predictability and stability in the law.
Due Process as a Check on Prosecutorial Power
The due process violations alleged in Shetty’s case underscore the need for judicial checks on prosecutorial power, particularly when cases involve complex financial transactions. Prosecutors wield significant discretion in determining who is charged and on what basis, and their decisions can have catastrophic impacts on the lives of those accused. Due process acts as a critical safeguard, ensuring that the burden of proof remains with the prosecution and protecting defendants from overzealous or arbitrary charges.
Shetty’s defense team argues that the prosecution’s case lacks both legal grounding and evidentiary support, asserting that the charges rely on a legal theory that does not meet due process standards. The presumption of innocence, they argue, is not merely a procedural formality but a foundational principle that protects against prosecutorial overreach. By attempting to secure a conviction without direct evidence of intent or harm, the government risks undermining public confidence in the fairness and impartiality of the justice system.
Fairness and Adherence to Legal Standards
As the Shetty case continues, it offers an opportunity for the courts to reaffirm the importance of due process and the presumption of innocence, particularly in cases involving intricate financial decisions and professional discretion. The government’s reliance on inferences and untested legal theories invites the court to scrutinize whether the evidence truly supports the charges or whether this case represents an overreach of prosecutorial power.
For business executives and legal practitioners, the outcome of Shetty’s case could have far-reaching implications. If the court upholds a conviction based on inferred intent and nondisclosure, it could signal a new era in which financial losses can be criminalized postfact.
In criminal law, due process is more than a technicality; it is a commitment to fairness and justice. By challenging the government’s case, Shetty’s defense is not merely defending one man’s innocence but upholding the principles that ensure integrity in the judicial process. This case, then, is a litmus test of whether the criminal justice system will remain anchored in principles of fairness or allow prosecutorial overreach to redefine the boundaries of criminal liability.