The case against SBF leaves out his victims

The SEC’s case is strange and likely to be unsatisfying to the alleged victims. Bankman-Fried isn’t accused of defrauding his customers, who lost billions of dollars and are unlikely to get much of it back.

Instead he’s accused of defrauding investors, the venture capitalists who were so taken in by Bankman-Fried that they threw money at him and overlooked obvious red flags at FTX (Its biggest customer was controlled by its founder! It had no CFO or board of directors! It owned a coin called TRUMPLOSE!). The real victim here, the SEC is saying, are the likes of Sequoia Capital.

Bankman-Fried marketed FTX stock to 90 U.S. investors and in the process, the government alleges, did not tell them that he was stealing money from his customers — a fact that, when made public, would make their stock worthless. Arguing that case in court doesn’t require a detour into crypto or a jurisdictional fight with the Bahamas, where FTX was based. It’s a straightforward legal approach.

But it’s unsatisfying — in any circumstance but particularly here, given how fawning and irresponsible FTX’s venture backers now appear to have been. Sequoia posted a buttery, 14,000-word article about Bankman-Fried on its website (since removed but available in archive form here, because that’s how the internet works, and worth reading in its entirety) that called him “instantly lovable — with the guilelessness, kindness, and openness of a Muppet — and so abstract that he seems more like a super-advanced AI than flesh and blood.” Sure.

Plus, FTX turned right back around and invested in his own investors. He held stakes in venture funds run by Sequoia, Altimeter Capital, and other FTX backers. It’s hard to argue that Sand Hill road is the epicenter of grievance here.

In a similar prosecution, it’s worth noting that Elizabeth Holmes, the disgraced founder of fallen blood-testing startup Theranos, wasn’t convicted of defrauding patients, but rather the wealthy individuals who funded her company. In that case, prosecutors did try, but a jury wasn’t convinced; she was convicted of securities fraud, but acquitted on counts that she lied to patients.

Expediency matters in these cases, and the SEC put together a strong, tight case in a matter of weeks — lightning speed in white-collar world.

And the Justice Department, in its criminal indictment, is more about fighting for FTX users who lost billions of dollars. Two of the eight counts against Bankman-Fried are for conspiring to defraud FTX’s customers. (Others allege he conspired to defraud the exchange’s lenders and investors, as well as the United States, by flouting campaign-finance laws.)