The meteoric rise and fall of FTX founder Sam Bankman-Fried will likely be followed by a lengthy journey through the criminal justice system — with Bankman-Fried facing a potentially serious sentencing if convicted, experts say.
Bankman-Fried, also known by the initials SBF, was arrested by authorities in the Bahamas on Monday — just hours before he was scheduled to testify before Congress — and on Tuesday was hit with both a civil complaint from the Securities and Exchange Commission and an eight-count indictment by the Department of Justice.
The SEC’s 28-page civil complaint accuses Bankman-Fried of “orchestrating a massive, years-long fraud, diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire.”
Legal experts see no signs that the government is prepared to go easy on Bankman-Fried
“This is truly a groundbreaking case, since it is one of the first crypto cases, and certainly in a league of its own in terms of size,” said Anthony Sabino, professor at the St. John’s University School of Law. “Nothing else comes close. So expect the government to be relentless and totally unforgiving here. It will exact its pound of flesh.”
The timing of the indictments on Tuesday — which prevented Bankman-Fried from testifying before Congress — may indicate just how strong the government believes its case is, said Justin Danilewitz, partner at Saul Ewing LLP.
“Ordinarily, the prosecution would welcome an additional opportunity for a defendant to speak under oath or on the record,” he said. “And evidently, they feel so strongly about the evidence that they have already that they felt it was time to move.”
Experts said the legal jeopardy Bankman-Fried faces is proportional to the amount of money that was at stake and the number of victims who were affected in the collapse of FTX.
“Since both numbers are astronomical here, this could go off the charts,” Sabino said. If Bankman-Fried is convicted, he said, “a conservative estimate” of the sentence he could face would be 20 years.
The SEC’s complaint, which is the more detailed of the two complaints filed Tuesday, seeks the return of “all ill-gotten gains,” including interest, obtained by Bankman-Fried’s alleged unlawful conduct.
In addition to multiple counts of fraud and conspiracy, the criminal complaint filed by the Department of Justice includes a count of conspiracy to violate campaign finance laws — a charge that Sabino said is likely to lead to political fallout. “If you indict SBF, saying he violated campaign finance laws,” he said, “the next natural logical question is: OK, so who did he donate to?”
But both complaints center on the same issue: the alleged commingling of funds between FTX and Alameda Research, a trading firm also cofounded by Bankman-Fried. “From the inception of FTX, Bankman-Fried diverted FTX customer funds to Alameda, and he continued to do so until FTX’s collapse in November 2022,” the SEC’s complaint states.
Bankman-Fried made his first court appearance in the Bahamas on Tuesday, shortly after his arrest — where he reportedly told a judge he was not waiving his right to fight extradition to the United States.
Experts said the legal road ahead of Bankman-Fried is a long one
The magnitude of Bankman-Fried’s legal exposure may give him extra incentive to go to trial since the downside of a conviction might not differ much from a guilty plea, Danilewitz said. “Because of that, there might be an incentive for the defendant to dig in, dig a trench and get ready for the long haul.”
While fallen financier Bernie Madoff pleaded guilty in a decision that was perceived as an effort to protect his family, he still received a 150-year sentence at the age of 71. “That’s the bellwether for SBF here,” Sabino said. “Of course, SBF could help himself by cooperating, especially in turning over or recovering assets to repay customers, but that remains to be seen.”
Barring executive clemency, federal prisoners have almost no prospect of early release, since there is no parole in the federal system. Madoff’s request for compassionate release while he was dying of chronic liver disease was denied.
Sabino estimated a criminal trial would be at least a year away, probably closer to 18 months. “Because of the vast complexity, both the prosecutors and SBF’s defense team will need a tremendous amount of time to prepare,” he explained.
Experts said Bankman-Fried did not do his legal defense any favors by speaking publicly in the days following the collapse of FTX.
Some of Bankman-Fried’s public remarks were quoted in the federal complaints filed Tuesday — including remarks in an interview with ABC host George Stephanopoulos on Dec. 1 that are quoted in the SEC complaint.
“I wasn’t even trying, like, I wasn’t spending any time or effort trying to manage risk on FTX,” Bankman-Fried told Stephanopoulos. “What happened, happened — and, if I had been spending an hour a day thinking about risk management on FTX, I don’t think that would have happened.”
Thanks to Lillian Barkley for copy editing this article.