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What does Sam Bankman-Fried’s sentencing mean for crypto? | Explained

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FTX founder Sam Bankman-Fried stands at the defense table to make a statement to U.S. District Judge Lewis Kaplan at Federal Court in New York City, U.S., March 28, 2024 in this courtroom sketch. REUTERS/Jane Rosenberg
| Photo Credit: Reuters

The story so far: Sam Bankman-Fried, the former CEO of the collapsed cryptocurrency exchange FTX, was sentenced to 25 years in prison on March 28, having been found guilty of multiple counts of fraud in 2023 after the spectacular crash of his cryptocurrency exchange FTX.

Almost one and a half years after the crash, what does the sentencing mean for the crypto sector and its investors?

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Also read: Ex-crypto mogul Sam Bankman-Fried convicted of defrauding FTX customers

What are the full terms of the sentence?

While Bankman-Fried’s lawyers tried to push for a shorter prison sentence of just a few years, prosecutors wanted to see him in prison for 40 to 50 years. Meanwhile, the maximum possible sentence was 110 years.

Throughout a month-long trial in 2023, Bankman-Fried’s legal team tried to steer away from the image of him being a malicious fraudster who stole crypto investors’ money, and instead painted a portrait of a well-intentioned businessman who had been let down by his trusted associates. Attorney Mark Mukasey referred to Bankman-Fried as an “awkward math nerd,” spoke about his autism, and pushed for a shorter sentence so that his client would be able to start a family.

When he was sentenced to 25 years in prison and three years of supervised release, Bankman-Fried accepted that FTX customers had suffered and that such an acknowledgment was “missing” from what he had spoken about during the trial. He also expressed regret about the way he treated his former colleagues.

Bankman-Fried, a former billionaire, will also have to give up around $11 billion as part of the sentence. During the legal proceedings, it was established that customers lost at least $8 billion, though this figure may vary due to the volatile nature of cryptocurrencies’ prices.

The judge authorised the government to use the funds recovered through the forfeiture process to compensate victims, per the U.S. Department of Justice direction released on Thursday.

Bankman-Fried’s lawyer is planning to appeal.

What were the charges against Sam Bankman-Fried?

Two counts of wire fraud conspiracy: Convicted

Two counts of wire fraud: Convicted

One count of conspiracy to commit money laundering: Convicted

Conspiracy to commit commodities fraud: Convicted

Conspiracy to commit securities fraud: Convicted

In total, there were seven counts of fraud and/or related charges.

FTX collapsed in late 2022 as customers panicked about the health of the exchange and tried to rapidly pull billions of dollars, triggering a liquidity crisis. It was later established that Bankman-Fried misused customer funds to prop up Alameda Research, a cryptocurrency trading firm. Bankman-Fried was arrested in the Bahamas a month later and was brought back to the U.S. to face trial.

In a statement on Thursday, U.S. Attorney for the Southern District of New York, Damian Williams, used the sentencing to issue a warning that focused on Bankman-Fried as a financial criminal rather than a fraudster in the crypto industry.

“Samuel Bankman-Fried orchestrated one of the largest financial frauds in history, stealing over $8 billion of his customers’ money,” said Williams. “His deliberate and ongoing lies demonstrated a brazen disregard for customers’ expectations and disrespect for the rule of law, all so that he could secretly use his customers’ money to expand his own power and influence. The scale of his crimes is measured not just by the amount of money that was stolen, but by the extraordinary harm caused to victims, who in some cases had their life savings wiped out overnight.”


Also read: The reasons behind the crashing crypto market

The co-founder and ex-CEO of FTX has been in custody since last year, because he violated his bail conditions and engaged in witness tampering, according to the judge.

Will FTX users get their money back?

There is no way to be certain of this, but such an outcome looks highly unlikely, with different parties making vastly different claims about the state of FTX’s assets.

Lawyer Andrew Dietderich, who is working with the collapsed crypto exchange, said earlier this year that a strategy was in place to try and repay all those customers and creditors with “legitimate claims,” CNBC reported.

Bankman-Fried also said earlier that people would be paid back.

However, Judge Lewis A. Kaplan expressed doubt during the sentencing, noting, “The defendant’s assertion that FTX customers and creditors will be paid in full is misleading, it is logically flawed, it is speculative.”

How will the sentencing affect the crypto market?

Bankman-Fried’s high-profile arrest, his disgraced return to the U.S., and the dramatic court proceedings where his own former colleagues and even a romantic partner testified against him, made headlines worldwide. His chaotic testimony and uncooperative behaviour stunned even the judge, and did not help to turn public opinion in his favour.

The cryptocurrency market itself seemed largely unaffected by the news of the sentencing, as top coins Bitcoin (BTC) and Ether (ETH) did not dramatically spike or fall in the past few days. While FTX’s token is still trading, it fell by more than 13% on Friday and was worth less than $2, when compared to its all-time-high of $85.02.

“The FTX bankruptcy proceedings are underway. The FTT token no longer has any use, and may be liquidated by the estate to pay creditors. Please proceed with caution,” said a notice on its CoinMarketCap page.

Bitcoin this year marked a new all-time-high in price and crossed the $70,000 threshold, injecting the sector with optimism after around two years of depressed prices and a reputational crisis.

FTX was founded in 2019 and former CEO Sam Bankman-Fried was known for his casual dress sense, lavish lifestyle, and a controversial approach to charity known as ‘effective altruism.’ Bankman-Fried was also a prolific political donator in the U.S. who gave millions of dollars to individuals from both parties, while FTX was known for its high-profile advertising gimmicks, including commercials with comedian Larry David and American football athlete Tom Brady.

The 25-year-long prison sentence serves as a reminder to crypto entrepreneurs everywhere that U.S. regulators can strike quickly when it comes to the fintech sector.

The greatest loss, however, is usually borne by risk-taking investors.

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FTX founder Sam Bankman-Fried goes to jail as judge revokes bail

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FTX founder Sam Bankman-Fried left a federal courtroom in handcuffs on August 11 when a judge revoked his bail after concluding that the fallen cryptocurrency wiz had repeatedly tried to influence witnesses against him.

Bankman-Fried drooped his head as Judge Lewis A. Kaplan explained at length why he believed the California man had repeatedly pushed the boundaries of his $250 million bail package to a point that Judge Kaplan could no longer ensure the protection of the community, including prosecutors’ witnesses, unless the 31-year-old was behind bars.

After the hearing ended, Bankman-Fried took off his suit jacket and tie and turned his watch and other personal belongings over to his lawyers. The clanging of handcuffs could be heard as his hands were cuffed in front of him. He was then led out of the courtroom by U.S. marshals.

It was a spectacular fall for a man who prosecutors say portrayed himself as “a saviour of the cryptocurrency industry” as he testified before Congress and hired celebrities including Larry David, Tom Brady and Stephen Curry to promote his businesses.

Prosecutors said Bankman-Fried stole billions of dollars in FTX customer deposits to fund his businesses and speculative venture investments, make charitable donations and spend tens of millions of dollars on illegal campaign donations to Democrats and Republicans in an attempt to buy influence over cryptocurrency regulation in Washington.

Judge Kaplan said there was probable cause to believe Bankman-Fried had tried to “tamper with witnesses at least twice” since his December 2022 arrest, most recently by showing a journalist the private writings of a former girlfriend and key witness against him and in January 2023 when he reached out to FTX’s general counsel with an encrypted communication.

The judge said he concluded there was a probability that Bankman-Fried had tried to influence both anticipated trial witnesses “and quite likely others whose names we don’t even know” to get them to “back off, to have them hedge their cooperation with the government”.

The incarceration order signed by the judge said Judge Kaplan found probable cause to believe Bankman-Fried had committed the federal crime of attempted witness tampering.

Bankman-Fried’s lawyers insisted that their client’s motives were innocent and he shouldn’t be jailed for trying to protect his reputation against a barrage of unfavorable news stories.

Attorney Mark Cohen asked the judge to suspend his incarceration order for an immediate appeal, but Judge Kaplan rejected the request. Within an hour, defence lawyers had filed a notice of appeal.

Bankman-Fried was sent for the night to the Metropolitan Detention Center in Brooklyn, which has previously housed convicted “pharma bro” pharmaceutical executive Martin Shkreli and convicted sex offenders R. Kelly and Ghislaine Maxwell.

Bankman-Fried had been under house arrest at his parents’ home in Palo Alto, California, since his December extradition from the Bahamas on charges that he defrauded investors in his businesses and illegally diverted millions of dollars’ worth of cryptocurrency from customers using his FTX exchange.

His bail package severely restricted his internet and phone usage.

The judge noted that the strict rules did not stop him from reaching out in January to a top FTX lawyer, saying he “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”.

At a February hearing, Judge Kaplan said the communication “suggests to me that maybe he has committed or attempted to commit a federal felony while on release.”

On August 11, Judge Kaplan said he was rejecting defence claims that the communication was benign.

Instead, he said, it seems to be an invitation for the FTX general counsel “to get together with Bankman-Fried” so that their recollections “are on the same page”.

Two weeks ago, prosecutors surprised Bankman-Fried’s attorneys by demanding his incarceration, saying he violated those rules by showing The New York Times the private writings of Caroline Ellison, his former girlfriend and the ex-CEO of Alameda Research, a cryptocurrency trading hedge fund that was one of his businesses.

Prosecutors maintained he was trying to sully her reputation and influence prospective jurors who might be summoned for his October trial by sharing deep thoughts about her job and the romantic relationship she had with Bankman-Fried.

The judge said on August 11 that the excerpts of Ellison’s communications that Bankman-Fried had shared with a reporter were the kinds of things that somebody who’d been in a relationship with somebody “would be very unlikely to share with anybody, lest The New York Times, except to hurt, discredit, and frighten the subject of the material”.

Ellison pleaded guilty in December to criminal charges carrying a potential penalty of 110 years in prison. She has agreed to testify against Bankman-Fried as part of a deal that could lead to a more lenient sentence.

Bankman-Fried’s lawyers argued he probably failed in a quest to defend his reputation because the article cast Ellison in a sympathetic light. They also said prosecutors exaggerated the role Bankman-Fried had in the article.

They said prosecutors were trying to get their client locked up by offering evidence consisting of “innuendo, speculation, and scant facts”.

Since prosecutors made their detention request, Judge Kaplan had imposed a gag order barring public comments by people participating in the trial, including Bankman-Fried.

David McCraw, a lawyer for the Times, had written to the judge, noting the First Amendment implications of any blanket gag order, as well as public interest in Ellison and her cryptocurrency trading firm.

Ellison confessed to a central role in a scheme defrauding investors of billions of dollars that went undetected, Mr. McCraw said.

“It is not surprising that the public wants to know more about who she is and what she did and that news organizations would seek to provide to the public timely, pertinent, and fairly reported information about her, as The Times did in its story,” Mr. McCraw said.

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