Now that a Manhattan jury has taken just four hours to find Sam Bankman-Fried, founder and former CEO of the cryptocurrency exchange FTX, guilty of an array of felony charges, the question remains of what penalty the former crypto entrepreneur should receive at his sentencing in March.
The question presents a number of difficult subsidiary issues, legal experts and specialists in white-collar crime have told The Epoch Times.
For all the seriousness of the fraud he perpetrated, Mr. Bankman-Fried is a nonviolent offender with no prior criminal history. Yet the impact of his fraud on the global financial markets and the cryptocurrency sector is so severe, and the need to deter future recklessness and malfeasance so drastic, that Mr. Bankman-Fried well deserves decades in prison, they say.
Vast Ambitions
Mr. Bankman-Fried founded the cryptocurrency exchange FTX in May 2019 and aggressively pitched himself and his business to investors, politicians, journalists, and regulators around the world.The emerging cryptocurrency market had more than its share of skeptics.
But Mr. Bankman-Fried so successfully cultivated the image of a savvy fintech guru—and as the adult in a room full of precocious young crypto zealots—that New York Magazine even approached him for expert commentary on what led to the unraveling of another crypto exchange, Three Arrows Capital, the subject of a cover story in the magazine’s Aug. 15, 2022, issue.
At the height of his game, Mr. Bankman-Fried’s net worth was pegged at $15.6 billion and he had many friends in the upper echelons of politics and finance, thanks partly to his lavish donations to Democratic Party candidates and causes and smaller gifts to certain GOP figures.
Mr. Bankman-Fried did not treat customer deposits as such but as, in effect, loans to FTX, to Alameda Research, the hedge fund under the direction of his sometime girlfriend, Caroline Ellison, and to himself.
After a Nov. 6, 2022, tweet from Binance founder Changpeng Zhao (“CZ”) about the state of Alameda Research finances and the value of crypto token FTT sent waves of alarm through the crypto sector and financial markets, FTX was not nearly prepared to meet the onslaught of withdrawal requests from FTX customers, owing partly to the fact that their funds had grown commingled with the cash reserves of Alameda.
Customers yanked $1 billion from FTX the day of CZ’s tweet, but Alameda still owed $10 billion to FTX, and many users were unable to get back any of their money in any form.
Besides playing fast and loose with customer funds—a pattern of behavior that the jury found to constitute securities fraud, wire fraud, and money laundering—Mr. Bankman-Fried stands accused of campaign finance violations for his cavalier use of FTX deposits to fund candidates and causes as he saw fit.
Question of Proportionality
For some, the issue is stark. Mr. Bankman-Fried committed horrendous crimes and betrayed the trust of investors, and deserves a harsh punishment. Yet even now there are those who view FTX’s founder as a young man who got in way over his head and was more inept than criminal.What sentence to hand to Mr. Bankman-Fried is not a simple question, Mark Graber, a professor of law at the University of Maryland, told The Epoch Times.
“Thinking about appropriate sentences for white-collar crimes is difficult. On the one hand, Bankman-Fried is no threat to people out of prison, particularly if he is barred from engaging in particular lines of work. On the other hand, his crimes are serious and deserve punishment,” he said.
Mr. Graber noted that under the U.S. legal system, the options are somewhat limited, ranging from punishments not necessarily proportionate to the crime, to fees and penalties that some people manage to find ways around. There is not much room here for creativity.
“Perhaps the real problem is that our punishment alternatives are prison, which often is unnecessary and rarely accomplishes much work, or fines which the affluent can pay without too much pain. I’ve often thought the best punishment might be to bar any income above twice the poverty line and place limits on net wealth and on gifts, but that may not be enforceable,” he said.
Others judge Mr. Bankman-Fried more harshly, given the catastrophic consequences of his fraud, and see no role for lenience in his sentencing. The scale of what he did cannot be ignored, and jailing the perpetrators of financial fraud is a necessary means of conveying society’s disapproval, Michael Alcazar, a professor in the Department of Law, Police Science, and Criminal Justice Administration at the City University of New York, told The Epoch Times.
“Economic fraud causes societal harm. White-collar criminals should expect punishment and prison time as a consequence of their actions. If the justice system goes lenient on criminals like Sam Bankman-Fried, it will weaken confidence in the system,” Mr. Alcazar said.
“In fact, it may encourage white-collar crimes. The punishment must not only be swift, but must be equated with the crime. The prison time should be enough to be a deterrent for future offenders,” he added.
Besides a lengthy prison term, Mr. Bankman-Fried is likely to have to make certain forms of restitution that may be more familiar in a civil law context, he observed.
“Bankman-Fried will be expected to make financial restitution on top of prison time. Judge Kaplan will weigh his criminal history—which is none—and perhaps his age. But because his financial crimes were so severe, I believe Kaplan may impose prison time between 25 and 50 years,” Mr. Alcazar continued.
Life in Prison?
As long as the sentence Mr. Alcazar predicts might seem, 50 years is not even half of the term that some expect, and hope, Mr. Bankman-Fried will ultimately receive.“I believe that it is reasonable to sentence Mr. Bankman-Fried to life in prison. His crime was so significant in scale and scope that I would argue it threatened the social order. His actions disrupted the cryptocurrency market, and he used several million dollars of his takings to influence the political process,” Gary Wolfram, a professor of economics and public policy at Hillsdale College in Michigan, told The Epoch Times.
In agreement with Mr. Wolfram’s view of the wide-ranging impact of Mr. Bankman-Fried’s fraud—and its effects on global markets—is Claire Cummings, a name partner of the London-based law firm Cummings Pepperdine, which has a focus on cryptocurrency, fintech, and securities laws.
“I think there is a wider picture here in the number of businesses and people that Bankman-Fried impacted—he pressed pause on the whole industry, and that created casualties,” Ms. Cummings told The Epoch Times.
In the post-bankruptcy restructuring that has played out under the leadership of John Ray III, who once was in charge of U.S. energy corporation Enron in the aftermath of its October 2001 implosion, there have been a few encouraging signs, Ms. Cummings noted.
“Interestingly, there was a slight give-back in the write-down of FTX debts, which have recently started to trade with more liquidity and greater volume, giving an accounting uplift to some people,” Ms. Cummings said.
The Epoch Times has reached out to Mr. Bankman-Fried’s legal team for comment.
