The News
Sam Bankman-Fried, the disgraced founder of the now-bankrupt cryptocurrency firm FTX, was sentenced Thursday to 25 years in prison for stealing customers’ money and misleading investors.
The sentencing ends the rise-and-fall story that had captivated Wall Street and shaken the crypto community. The one time boy-king, who built and lost a financial empire by the age of 30, has brought new scrutiny to the industry.
In a victim impact statement, Sunil Kavuri, an FTX investor who reportedly lost more than $2 million in the scheme, told the court: “I lived the FTX nightmare everyday for almost two years.”
Before his sentencing, Bankman-Fried’s lawyer described him as an “awkward math nerd” with “off the chart intellect.”
“He is a beautiful puzzle,” Mark Mukasey told the court, and dismissed Bankman-Fried’s comparisons to Bernie Madoff, the late investor who was responsible for the biggest Ponzi scheme in history.
“Madoff stole from Holocaust survivors; that is not Sam,” Mukasey said. “He wasn’t predatory. He makes decisions with math in his head, not malice in his heart.”
Bankman-Fried also directly addressed the court, telling Judge Lewis Kaplan that he was particularly disappointed he had let down his FTX colleagues.
“I threw away what they had built,” he said. “I’m sorry about that.”
A jury in November convicted Bankman-Fried of siphoning customers’ money into his hedge fund, Alameda Research, and into a grab-bag of crypto and venture investments. He was also found to have lied to FTX’s investors, which included a who’s-who of Silicon Valley.
Bankman-Fried and his attorneys admitted that he made mistakes but said he never meant to defraud anyone. But witnesses — including former FTX employees, some of whom have pleaded guilty to crimes of their own — told the jury that Bankman-Fried knew what he was doing was illegal.
FTX collapsed over 10 days in November 2022 and filed for bankruptcy. Its new CEO has recovered billions of dollars by selling digital assets and venture stakes, clawing back political contributions and hunting down cash, and says he expects customers to be repaid, though not other creditors or stockholders.
The former billionaire, 32, also faces charges in the U.S. for allegedly trying to bribe Chinese officials.
Bankman-Fried was an early investor in Semafor, which replaced his money after charges were filed.
SIGNALS
SBF’s sentencing could help to stabilize crypto industry
The severity of Bankman-Fried’s sentence is part of “a broader attempt to impose standardized norms of corporate governance and behavior on an upstart industry,” Howard Fischer, a former trial counsel for the Securities and Exchange Commission, wrote for CNN. The SEC has been trying to regulate the digital assets industry in line with traditional finance, leading to complaints from many proponents of crypto, who see it as like “trying to force new wine into old bottles,” Fischer wrote. However, these efforts, including SBF’s lengthy sentence, will ultimately benefit cryptocurrency, he argued, writing that “Digital assets’ widespread acceptance is inextricably tied to their incorporation within traditional legal and regulatory strictures.” After the SEC approved bitcoin exchange-traded funds in January, allowing mainstream investors to invest, the price of bitcoin surged — proving that traditional regulatory norms can boost confidence in newer digital assets.
Former crypto billionaire continues to ‘insult’ victims by saying they were unharmed
Bankman-Fried and his attorneys continue “insulting” FTX’s victims by insisting that customers and lenders suffered zero harm as a result of the firm’s collapse, Duke University Law School lecturer Lee Reiners wrote for The Hill. In a submission to the court, the trading firm’s new CEO, John Ray III, labeled his predecessor’s claims that customers were not harmed and that FTX was solvent when it went bankrupt as “categorically, callously, and demonstrably false,” describing the estate he took over as a “metaphorical dumpster fire.” Because of the price surge in bitcoin and other coins in recent months, customers who manage to get their assets back will have lost out on thousands of dollars’ worth of gains, because victims are being treated as unsecured creditors, meaning the value of their crypto assets is tied to the price of their coins when FTX collapsed. “This is money that customers could have used to meet their financial needs and goals, if not for Bankman-Fried’s fraud,” Reiners wrote.
New CEO of FTX defends not rebooting exchange
A host of creditors have lambasted FTX’s new CEO for the slow pace of recoveries and for not reopening the exchange to allow investors to trade again. Ray defended his actions in an interview with Semafor’s Liz Hoffman, comparing the messy aftermath of FTX’s bankruptcy as being akin to a “crime scene.” Rebooting the exchange would have led to money being diverted away from customers, while the collapsed firm lacked adequate controls and had no security or financial reporting mechanisms, Ray said. “We’re never going to be able to put Humpty Dumpty back together again, because Humpty Dumpty was never complete to begin with,” he added.