Founder of FTX Found Guilty of Fraud and Money Laundering
Overview
Sam Bankman-Fried (SBF), the founder of FTX, was arrested in December 2022 and subsequently charged with seven counts of fraud and money laundering following the fall of the cryptocurrency exchange platform. The bankruptcy has been named as “one of the biggest financial frauds in American history” by US Attorney Damian Williams, resulting in a total loss of $8bn of customer funds.
Sam Bankman-Fried’s sentence hearing is set to take place in March 2024. Five of the charges carry a maximum sentence of 20 years whilst the remaining two carry a 5-year maximum charge. The ‘Crypto King’ is now at risk of receiving 110 years in prison.
The fall of FTX & the Crypto King
Despite being only founded in 2019, FTX was a leading cryptocurrency exchange firm. Amongst its competitors, it stood out for its strong dealmaking in the turmoil of other firms hitting a downturn in 2021. Its founder was labelled as ‘the Crypto King’ and only two years after starting FTX, the firm’s profits led him all the way to the Forbes Billionaires list.
One of FTX’s differentiating points was the option of receiving deposits on behalf of FTX customers through Bankman-Fried’s other crypto-trading firm, Alameda Research, when traditional banks were unwilling to let crypto firms open accounts. Following FTX’s collapse, it was discovered that SBF used customers’ deposits for personal investments, buying properties, making political donations and other money laundering schemes. When insolvency expert, John Ray, took over the company he declared “a complete absence of trustworthy financial information”.
The trial
On 2nd November 2023, the jury found SBF guilty of various charges in the fraud domain, including lying to investors and lenders, as well as embezzling billions from FTX - a significant contribution to the exchange's downfall.
Despite entering a not guilty plea, Bankman-Fried found himself behind bars in August after being accused of witness tampering in the lead-up to the trial. His position deteriorated when three of his former friends pleaded guilty and agreed to testify against him to secure reduced sentences. To gain the jury’s sympathy, Bankman-Fried chose to take the stand in his defence but ultimately failed to convince them of his innocence. In particular, Bankman-Fried's habit of setting messages between FTX and Alameda executives to auto-delete was a move that many jurors deemed highly suspicious, providing a strong indication of his guilt.
Bankman-Fried's legal team argued that his conduct, while possibly ill-advised, was within the bounds of the law, and therefore, should not warrant a conviction. Similarly, they asserted that his actions may have been morally questionable but did not constitute criminal behaviour. The jury rejected this defence, firmly asserting that Bankman-Fried's actions led to significant harm and financial loss, making him culpable for his crimes.
The aftermath
Although it remains unclear whether SBF intends to appeal the decision, the significance of the case so far has been already observed.
Following a slump in the crypto market over the last 2 years, many, including Federal Prosecutor Damian Williams, see this case as a chance for the industry to get rid of its corruption and move forward. It sets an unwavering precedent across the industry to warn financial fraudsters of the repercussions of unethical and illegal conduct. Moreover, it alerts other sectors involved in cryptocurrency and areas with high-risk financial crime. For example, the most prominent Venture Firm to back Bankman-Fried, Sequoia, has been prompted to review its due diligence process. This sentiment and prosecution capabilities are likely to be strengthened as regulatory bodies grapple with implementing new regulatory measures.
By Adham Shaker