Thursday, April 25

Sam Bankman-Fried sentenced to 25 years in prison for FTX fraud

Sam Bankman-Fried, the founder of cryptocurrency exchange FTX who was convicted of stealing billions of dollars from customers, was sentenced to 25 years in prison on Thursday, ending an extraordinary saga that has shaken up the crypto industry and become a warning against greed and hubris.

Mr. Bankman-Fried’s sentence was shorter than the 40 to 50 years requested by federal prosecutors after a jury found him guilty of fraud, conspiracy and money laundering – charges punishable by a maximum sentence of 110 years in prison. But the sentence was much longer than the six and a half years requested by his lawyers.

Mr. Bankman-Fried, 32, did not visibly react when Judge Lewis A. Kaplan handed down the sentence in Manhattan Federal District Court. His parents, law professors Joe Bankman and Barbara Fried, sat two rows from the front, looking at the floor.

“He knew it was wrong. He knew it was criminal,” Judge Kaplan said of Mr. Bankman-Fried’s actions.

Before the sentence was handed down, Mr. Bankman-Fried, clean-shaven and wearing a baggy brown prison uniform, apologized to FTX customers, investors and employees.

“A lot of people feel really disappointed, and they have been very disappointed,” he said. “I’m sorry about that. “I’m sorry for what happened every step of the way.” He added that his decisions “haunt” him every day.

Mr. Bankman-Fried was also ordered to forfeit approximately $11 billion in assets.

During sentencing, Judge Kaplan pointed to testimony from Mr. Bankman-Fried’s trial that showed the FTX founder’s extreme appetite for risk, saying it was his “nature” to make colossal bets dangerous. “There is a risk that this man will be able to do something very bad in the future,” he said.

Judge Kaplan also said Mr. Bankman-Fried lied on the witness stand and failed to take responsibility for his crimes. “He regrets making a very bad bet on the likelihood of getting caught,” he said. “But he’s not going to admit anything.”

Mr. Bankman-Fried, currently married at the Metropolitan Detention Center in Brooklyn, will be sent to a low- or medium-security prison, the judge said, most likely near his parents’ home in the San Francisco Bay Area.

The conviction marked the end of a wide-ranging fraud case that exposed widespread volatility and risk-taking in the loosely regulated world of cryptocurrencies. In November 2022, FTX imploded virtually overnight, wiping out $8 billion in customer savings. In an unsuccessful trial, he was convicted of seven counts of fraud, conspiracy and money laundering.

His sentence is one of the longest given to a white-collar defendant in recent years. Bernie Madoff, who orchestrated a famous Ponzi scheme that erupted during the 2008 financial crisis, was sentenced to 150 years in prison in 2009. He was 70 and died 12 years later. Elizabeth Holmes, convicted of defrauding investors in her blood testing startup, Theranos, was sentenced to 11 years and three months in 2022.

A representative for Mr. Bankman-Fried declined to comment. In a statement, his parents said: “We are heartbroken and will continue to fight for our son. »

Ira Lee Sorkin, the defense lawyer who represented Mr. Madoff, said he was not surprised that Mr. Bankman-Fried received a harsh sentence, albeit shorter than that of his own client.

“He’s 32 years old and he’ll see the light of day,” he said of Mr. Bankman-Fried. “But he’s going to spend a lot of time in the cell.”

Just 18 months ago, Mr. Bankman-Fried was a business titan and one of the youngest billionaires on the planet. With his face plastered on billboards and magazine covers, he could seemingly raise money at will. He hobnobbed with superstar actors, musicians and athletes, cultivating an image as a nerdy do-gooder who intended to give away all his wealth to charity.

Based in the Bahamas, FTX was one of the largest cryptocurrency exchanges – an easy-to-use platform where investors could exchange dollars or euros for digital coins like Bitcoin and Ether. Its valuation was over $30 billion.

But less than a week into November 2022, a run on deposits revealed an $8 billion hole in FTX’s accounts. Mr. Bankman-Fried resigned, handing over power to a team of lawyers who quickly filed for bankruptcy. The following month, he was arrested at his luxury apartment in the Bahamas and accused of stealing from clients to fund billions of dollars in political contributions, charitable donations and investments in other start-ups.

The investigation proceeded with initial speed for such a complex case. Within months, three of Mr. Bankman-Fried’s top aides, including a former girlfriend, pleaded guilty to fraud and agreed to cooperate with prosecutors. Mr. Bankman-Fried was initially placed on home detention, but the judge revoked his bail in August after ruling that he had tried to intimidate witnesses and sent him to the Brooklyn Detention Center.

At the trial in October, Mr. Bankman-Fried’s former colleagues testified for the prosecution, telling a jury that they had conspired with him to plunder customer accounts. When he took the witness stand, Mr. Bankman-Fried appeared evasive at times, repeatedly saying he did not remember crucial details of his tenure at FTX.

“When he was not outright lying, he was often evasive, evasive, dodging questions,” Judge Kaplan said Thursday. “I’ve never seen a performance like that.”

After his conviction, Mr. Bankman-Fried’s lawyers and family embarked on a long-running campaign to obtain a lenient sentence and rewrite the public narrative about FTX’s failure. In a sentencing memo, Marc Mukasey, one of the defense attorneys, argued that Mr. Bankman-Fried had sometimes behaved strangely on the stand because he was autistic. He also cited the tycoon’s charitable initiatives, saying FTX was meant to be a force for good in the world.

But the defense’s argument centered on the money FTX users lost when the exchange collapsed. Since FTX’s bankruptcy, its new executives have scraped together billions of dollars to return to customers, in part by liquidating digital coin reserves and selling Mr. Bankman-Fried’s stakes in other companies. Mr. Mukasey claimed that those customers would eventually be cured through the bankruptcy process, putting the losses caused by Mr. Bankman-Fried’s actions at “zero.”

Prosecutors rejected that argument. While new FTX management has predicted that customers will eventually get their deposits back, the money they receive will be equivalent to the dollar value of their holdings in November 2022 – and will not take into account the recent market surge of crypto that sent Bitcoin to its highest price on record.

Mr. Bankman-Fried “demonstrated a blatant lack of respect for the rule of law,” prosecutors wrote in a sentencing memo. “He knew what society considered illegal and unethical, but he ignored it on the basis of pernicious megalomania. »

On Thursday, Judge Kaplan said of FTX’s victims: “The defendant’s assurance that they will be paid in full is misleading.” This is logically wrong. It’s speculative.

In recent weeks, prosecutors have filed hundreds of letters from FTX customers explaining how financial losses had devastated their lives. One client said the collapse led to “suicidal thoughts.”

“Sam Bankman-Fried must think for the rest of his life about the multitude of lives he destroyed with his selfishness and superficiality,” the client wrote. “I really hope that justice will teach him the difference between life and video games.”

Another FTX user, Sunil Kavuri, who lost $2 million in the company’s bankruptcy, told the hearing that the implosion wiped out the money he planned to spend on a house and the education of his children.

“I’ve been living the FTX nightmare for almost two years,” he said.

When Mr. Bankman-Fried took the stand, he presented a sometimes disjointed set of thoughts, apologizing for his mistakes while insisting that FTX had enough assets to keep its customers happy.

“I made a series of bad decisions,” he said, his leg shaking. “These were not selfish decisions. These were not altruistic decisions. “They were bad decisions.”

Mr. Bankman-Fried has vowed to appeal his conviction, hiring a lawyer from the Shapiro Arato Bach law firm to oversee that effort. But in his remarks he appeared to accept that he would remain in prison for some time.

“At the end of the day, my useful life is probably over now,” he said.

Matthew Goldstein reports contributed.