The legal catastrophe FTX founder Sam Bankman-Fried may face.


Could Sam Bankman-Fried get life in prison? The legal catastrophe the FTX founder may face.

The sudden and stunning collapse of FTX last month has potentially put Sam Bankman-Fried, the founder of the Bahamas-based cryptocurrency exchange, in legal jeopardy proportional to the historic scale of his company’s crash.

Bankman-Fried, 30, resigned as CEO of FTX on Nov. 11 as the company, which had been valued at $32 billion, filed for Chapter 11 bankruptcy protection. Up to a million customers who may have been affected by the company’s collapse are potentially creditors in the bankruptcy proceedings, FTX has said in bankruptcy filings.

The collapse has triggered investigations by federal agencies including the Department of Justice, Securities and Exchange Commission and the Commodities Futures Trading Commission, which regulates derivatives markets. Authorities in the Bahamas have also launched their own probe. Among the matters reportedly under scrutiny is the commingling of funds between FTX and Alameda Research, a trading firm also cofounded by Bankman-Fried.

“Prosecutors may be looking at a number of possible charges including whether members of FTX management engaged in criminal securities fraud, mail fraud, money laundering and wire fraud,” said Richard Levin, chair of the fintech and regulation practice at Nelson Mullins Riley and Scarborough LLP.


Bankman-Fried, also known by his initials, SBF, has taken the unusual step of speaking publicly at the collapse. He appeared remotely from the Bahamas at the New York Times’ DealBook Summit on Wednesday, where journalist Andrew Ross Sorkin asked him whether he was concerned about criminal liability in the wake of his company’s collapse.

“I don’t think that — obviously, I don’t personally think that I have — I think the real answer is it’s not — it sounds weird to say it, but I think the real answer is it’s not what I’m focusing on,” Bankman-Fried said. “It’s — there’s going to be a time and a place for me to think about myself and my own future. But I don’t think this is it.”

In a filing Thursday in the FTX bankruptcy proceedings, the Justice Department’s trustee in the case, Andrew Vara, asked the court to appoint an independent examiner to look into the company. “Was this an unsuccessful business or a successful fraud? In other words, is there anything to save here?” Vara wrote.

Wire fraud is a potential area of investigator focus

Experts in the laws surrounding financial products say although Bankman-Fried has not been charged with any crime, he has reason to be concerned.

Braden Perry, a former senior trial attorney at the Commodities Futures Trading Commission, said potential prosecutors may have a number of potential criminal sanctions available and their “best tool is the broad applicability of wire fraud.”


“Based on the allegations of commingling of customer funds, prosecutors could likely argue SBF used interstate telephone calls or electronic communications made in furtherance of a fraudulent scheme,” Perry said.

Wire fraud is also a predicate offense to possible claims under the Racketeer Influenced and Corrupt Organizations Act, Perry said.

Bankman-Fried could not immediately be reached for comment.

If charged and convicted, life in prison could be on the table

If Bankman-Fried is charged and convicted, experts said the dollar value of the reported losses could potentially play a role in his sentencing.

“The dollar value of the criminal conduct is taken into account at sentencing,” Levin said. “For example, in the [Bernie] Madoff prosecution, the defendant was sentenced to 150 years in a federal prison for criminal conduct involving $18 billion in investor losses.”

Taking the dollar value into account is part of the points-based federal sentencing guidelines, Perry said.

“Any loss above $550 million adds 30 points to the base level offense, while having 25 or more victims adds six points, use of certain regulated markets adds four, sophisticated means adds another two, and likely a jurisdictional element will add another two,” Perry told Grid.

If Bankman-Fried is tried and convicted, that could potentially mean life in prison, Perry added.

“If strictly enforced and assuming minimal mitigating factors, he’s sitting above 43, which is the maximum under the guidelines,” he said. “This would mean life in federal prison without the possibility of supervised release.”

Despite the harsh penalties that can be possible under federal sentencing guidelines, Perry said, many white-collar defendants receive lesser sentences than what the guidelines dictate due to factors including the punitive nature of the 30-point enhancement in large loss frauds.


Despite being in the Bahamas, neither FTX or Bankman-Fried are out of U.S. authorities’ reach.

It’s likely that the Bahamas authorities and the Department of Justice are currently in discussions about FTX, said Levin. “The [Department of Justice] Office of International Affairs works through a vast network of international relationships and treaties to obtain evidence located abroad that is needed as part of investigations,” he said. “Such discussions can also include working with foreign authorities related to extradition.”

Perry concurred. “As long as U.S. customers or U.S. institutions, including U.S. banks, were intertwined in the FTX fraud, it won’t be hampered by FTX’s headquarters’ offshore location,” he said. Many federal offenses have minimal jurisdictional requirements, and if there was a wire fraud involved that touches the U.S. at all, prosecutors can likely pursue it.

Public comments potentially ‘detrimental’

Rather than remain silent or speak through his attorneys, Bankman-Fried has kept himself in the public spotlight amid the investigations into the collapse of his company and growing public scrutiny of his management of FTX.

Legal experts said his decision to continue speaking publicly is probably ill-advised.


“It’s absolutely a mistake,” Perry said. “The more he speaks, the more potential admissions he gives prosecutors. No matter how much he may want to justify certain things, it’s detrimental to his potential legal defenses.”

In his interview with Sorkin on Wednesday, Bankman-Fried said while his lawyers advised him against continuing to speak publicly about the collapse of FTX, he felt a duty to do so anyway.

“The classic advice, right: Don’t say anything. Recede into a hole,” he said. “And that’s not who I am. It’s not who I want to be. I don’t have — I think I have a duty to talk to people. I have a duty to explain what happened.”

Thanks to Lillian Barkley for copy editing this article.

  • Steve Reilly
    Steve Reilly

    Investigative Reporter

    Steve Reilly is an investigative reporter for Grid focusing on threats to democracy.