- A federal judge has issued a sentence against former FTX founder Sam Bankman-Fried for defrauding customers and investors.
- The issued sentence falls far below the recommendation of the prosecution.
- Delve into the charges the former crypto wunderkind faced and what comes next for him.
In November 2023, FTX founder Sam Bankman-Fried (SBF) was found guilty of multiple counts of fraud in relation to the stunning collapse of his exchange that left customers and investors with billions of dollars in losses. Five months after the verdict, the disgraced crypto mogul has finally faced sentencing.
On Thursday, March 28, Judge Lewis Kaplan sentenced Bankman-Fried to 25 years in prison, far more than the five to seven years requested by the defense and still far less than the 40 to 50 years recommended by the prosecution. In addition to the prison term, the judge ordered $11.02 billion in asset forfeitures to repay the victims of the FTX collapse.
In this article, we break down the charges faced by the disgraced crypto mogul, what comes next, and what is likely to happen to former executives who turned on him.
A Multi-Year Fraud
In October 2023, Bankman-Fried stood trial for seven counts of fraud for his role in the FTX collapse. All of these suggested that he diverted FTX customer funds to keep his sister trading firm, Alameda Research, afloat and fund his personal ambitions.
Count One: Conspiracy to Commit Wire Fraud on Customers
According to prosecutors, from the start, Bankman-Fried and his colleagues lied to customers that FTX did not commingle customer funds. Still, all the while, they intended to use these funds to support the firm’s troubled sister trading firm, Alameda Research.
Per testimony from former FTX CTO Gary Wang, SBF ordered special privileges for Alameda on FTX as early as 2019, exempting the trading firm from the exchange’s liquidation engine. In essence, the firm was exempted from liquidations on FTX and allowed unfettered withdrawals sourced from customer deposits when the trading firm was in the red.
Wang further disclosed that at some point in 2020, Alameda’s negative balances exceeded FTX’s revenue by about $50 million. But even at this point, Bankman-Fried continued lying to customers about Alameda’s access to customer funds.
Sponsored
Bankman-Fried would maintain this stance even in the throes of FTX’s collapse, famously tweeting, “FTX is fine.”
Count Two: Wire Fraud on Customers
In line with count one, this charge contends that Bankman-Fried and his colleagues defrauded customers by misappropriating their assets to pay off Alameda loans, cover Alameda expenses, purchase private assets, and fund political donations.
During the trial, former Alameda CEO Caroline Ellison admitted that the trading firm siphoned up to $14 billion in FTX customer deposits for the purposes above. However, she pointed to Bankman-Fried as the mastermind.
"He set up the systems and told us to take the money," she revealed.
At the time of FTX’s bankruptcy, prosecutors found that at least $8 billion in customer funds were missing.
Count Three: Conspiracy to Commit Wire Fraud on Lenders
This charge alleges that the disgraced crypto mogul and his fellow executives planned to mislead lenders to obtain loans. Specifically, as far back as 2020, Bankman-Fried and his colleagues doctored Alameda’s balance sheet to mislead lenders about the state of the trading firm.
Alameda’s Caroline Ellison testified that Bankman-Fried had instructed the addition of illiquid tokens like the FTX-created FTT to the trading firm’s balance sheet.
“I thought it was misleading,” she told the court, adding that she complied because she feared for her job.
Count Four: Wire Fraud on Lenders
In line with count three, this charge alleges that Bankman-Fried went ahead with his plan to defraud lenders by offering these doctored balance sheets in exchange for loans.
The court found that these lenders lost an estimated $1.3 billion in FTX and Alameda’s collapse.
Count Five: Conspiracy to Commit Commodities Fraud
Bankman-Fried is accused of employing manipulative schemes and devices to defraud FTX customer of their trading funds. As outlined by the exchange’s former CTO Gary Wang, FTX offered Alameda backdoor access to customer funds with a line of credit of up to $65 billion.
Count Six: Conspiracy to Commit Securities Fraud
This claim alleges that Sam Bankman-Fried made false representations about FTX’s financial conditions and operations with the intent of defrauding investors.
Paradigm co-founder Matt Huang told the court that Bankman-Fried had lied to investors about FTX’s relationship with Alameda, dismissing concerns about possible advantages that could have been afforded to the trading firm.
Investors lost an estimated $1.7 billion in FTX’s collapse. Paradigm’s loss is estimated at around $278 million.
Count 7: Conspiracy to Commit Money Laundering
This claim accuses Bankman-Fried and his associates of trying to utilize customer monies in such a way as to conceal their origin. This included property purchases and executive loans.
What’s Next for Sam Bankman-Fried?
Following Bankman-Fried’s sentencing, his lawyers have reiterated their interest in launching an appeal of his conviction. This appeal is expected to be filed within the next two weeks.
Pending and during this appeal, however, Bankman-Fried will start serving his sentence, most likely in a medium-security prison per the recommendation of Judge Kaplan.
Medium-security prisons typically strike a balance between security and rehabilitation as they largely play host to convicts with less violent histories. While they can feature double fences and security cameras, they also offer a big rehabilitation focus with educational opportunities and job training.
Will Bankman-Fried Serve the Full Term?
While there is no possibility of parole for Bankman-Fried, the disgraced crypto mogul can still cut some time from his sentence for good behavior.
Former Federal Prosecutor Mitchell Epner told CNN that non-violent federal inmates can reduce their time by as much as 50% under the prison reform legislation known as the First Step Act. This legislation allows the former crypto wunderkind to spend only 12 and a half years in prison.
What About Other FTX and Alameda Executives?
Following the collapse of FTX and Alameda, executives like Caroline Ellison, Nishad Singh, and Gary Wang all took plea deals with the U.S. DOJ. While the details of this deal remain unclear, these executives are all likely to get off on lighter sentences.
On the Flipside
- Sam Bankman-Fried could end up serving only half of his term.
- Several members of the crypto industry have described the Sam Bankman-Fried sentence as too lenient, especially when compared to the life sentence faced by Silk Road founder Ross Ulbricht.
Why This Matters
At its peak, FTX was the largest crypto exchange in the world, behind only Binance. A key catalyst of the exchange’s success was Bankman-Fried’s ability to market himself as a crypto wunderkind, bridging the gap between the crypto industry, traditional finance, and the political scene. Behind all of this, however, the crypto mogul was taking risky bets with customer funds to fuel his ambitions. The recent sentencing ensures that his crimes will not go unpunished.
Read this for more on Sam Bankman-Fried:
Sam Bankman-Fried: Crypto’s Fallen Hero?
Learn more about Larry Fink’s recent statements on Ethereum ETFs:
How ETH ETF Works with Security Label According to Larry Fink
