New York’s Manhattan federal court had begun hearing Sam Bankman-Fried’s criminal cases. Sam Bankman-Fried, once a cryptocurrency legend and co-founder of FTX, the world’s third-largest cryptocurrency exchange, has been blamed for the collapse of the cryptocurrency industry last year.
In the upcoming weeks, lawyers for both sides will debate fiercely how FTX went bust, leaving thousands of customers in the lurch with their deposits frozen.
Customer Loss: $8.7 Billion
The US government alleges that FTX defrauded customers of $8.7 billion, but FTX and SBF refute the allegations.The FTX case was, in the words of a US attorney, “one of the largest financial frauds in American history.” Last year, an analysis suggested that FTX’s collapse stemmed from an $8 billion shortfall in client capital.
The collapse happened after FTX lent about $10 billion of client assets to its sister company, Alameda Research, as venture capital. FTX investigators said they found that the firm had lost $8.9 billion in client assets.
Recovered Assets: $7 Billion
Earlier this year, FTX’s new management, in charge of its bankruptcy restructuring, issued a report estimating that $8.7 billion of client money was missing at the time of the filing. FTX management said it had recovered about $7 billion in liquid assets.
SBF faces seven criminal charges. Bankman-Fried is facing seven charges that fall into three main categories: wire fraud, conspiracy to commit fraud of many types, and conspiracy to commit money laundering. Bankman-Fried has pleaded not guilty.
Gary Wang, who co-founded FTX with Bankman-Fried, told jurors—in compliance with an earlier plea deal—that he was guilty of wire fraud, securities fraud, and commodities fraud. Wang added that he committed those crimes under the direction of Bankman-Fried. His testimony corroborates media reports about various special advantages that FTX created and then hid for its sister cryptocurrency firm, Alameda Research.
Bad Decisions or Outright Fraud?
Prosecutors argued that FTX transferred customer accounts directly into a bank account controlled by Alameda that, on the face of it, had no connection to FTX other than having a co-founder. In doing so, the government said, FTX deceived customers about where their money was going and how it was being used.
In an opening statement, lead attorney Mark Cohen previewed a narrative that attempts to disperse blame for what were ultimately bad business decisions, rather than fraud.
SBF could change his plea or face up to 110 years in prison. Last Thursday, the judge raised the possibility that the proceedings could have left SBF feeling that his future prospects were slim. This is certainly not what SBF’s defense team wanted. Some legal experts believe that, by this stage, even if SBF changed his guilty plea, it is unlikely to have a great impact on the trial. He can change his guilty stance, but it is impossible to reach a plea agreement with the government that may make his charges lighter.
Maximum Sentence: 115 Years
There is a possibility that SBF’s parents will also be charged. If that happens, it could pressure SBF into pleading guilty. One possibility raised by the defense on Thursday was that there might not be a case against SBF’s parents at all. The prosecution of SBF’s parents depends on the approval.If SBF pleads guilty, the trial will end, and the judge will begin scheduling sentencing. If SBF pleads guilty to all seven criminal counts and receives the maximum penalty, he faces 110 years in prison. U.S. Attorney spokesman Nicholas Biase said the Justice Department’s charges, if substantiated, could put SBF behind bars for decades: with a maximum sentence of 115 years.
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