A New York court has announced the sentence against the ex-head of the crypto exchange FTX. The case of the former crypto star was also healing – Bitcoin has established itself as a form of investment.
With the announcement of the sentence, the deep fall of the former crypto king Sam Bankman-Fried has come to an end.
Andrew Kelly / Reuters
The party is finally over for Sam Bankman-Fried. A New York court sentenced the former boss of the bankrupt crypto platform FTX to 25 years in prison on Thursday. Judge Lewis Kaplan’s sentence remained between the prosecutors’ and defense’s expectations. The public prosecutor’s office had requested 40 to 50 years in prison, while Bankman-Fried’s lawyers had suggested around six years in prison. If Kaplan had exhausted the proposed penalties on all charges, it would have been more than 100 years in prison.
In November, the court found Bankman-Fried guilty of multiple counts of fraud and money laundering. Lawyers for the 32-year-old have been considering an appeal since his conviction in November.
Bankman-Fried was the head of one of the world‘s largest trading platforms for cryptocurrencies such as Bitcoin and Ether. It was forced to file for bankruptcy in November 2022 after an $8 billion hole was found in the company’s balance sheet. Customer funds were misused for speculative trading activities and some were lost.
The punishment was harsher than Bankman-Fried’s lawyers requested. They had spoken out for a maximum of six and a half years. One argument from the defense attorneys to mitigate the sentence was that the more than 100,000 FTX customers who were defrauded would be fully compensated as part of the bankruptcy proceedings.
Led by hubris and arrogance
In addition, the lawyers portrayed their client in a court filing as a “selfless,” “altruistic” young man who had “dedicated his life to philanthropy.” They described the 100-year prison sentence recommended by probation officers as “grotesque” and “barbaric.” Bankman-Fried, who has a variant of autism, would be particularly at risk in prison, lawyers said.
Meanwhile, the public prosecutor’s office demanded a prison sentence of 40 to 50 years because the 32-year-old was responsible for one of the “biggest financial frauds in history.” In the run-up to the announcement, John Ray, the insolvency administrator appointed to wind up FTX, also got involved. He had sought to undermine the defense strategy of Bankman-Fried’s lawyers by addressing the judge in charge, Lewis Kaplan, directly.
In a letter, he reiterated his view that Bankman-Fried was guided by “hubris, arrogance and a lack of respect for the basic norms of the law.” This is even less excusable given his privileged upbringing. The defense’s claim that customers, lenders and investors ultimately escaped unscathed is false.
The tax authorities also still have demands
Without the painstaking work of Ray’s team, there would be no significant bankruptcy estate from which to compensate creditors. For months, the bankruptcy trustee and his employees sifted through the rubble of FTX to locate remaining assets, some of which had been spent on luxury apartments, private jets and speculative investments. The insolvency administrators informed the court in January that customers could be “fully reimbursed” for their losses thanks to this minute work.
However, it is currently completely unclear whether and when compensation can be paid out. That also depends on whether the American tax authorities are prepared to defer their own claims. The insolvent crypto company is said to owe the state 24 billion in unpaid taxes.
Either way, it is the final end of a rapid and deep fall for Bankman-Fried, who once had a fortune worth billions. Meanwhile, the rest of the industry is once again in a gold rush mood. In mid-March, Bitcoin reached a record high of $73,800. Since then, the price has fallen slightly again, but on Monday the largest cryptocurrency exceeded the 70,000 threshold again.
Bitcoin has made it into the traditional financial world
Bankman-Fried and FTX, of all people, contributed to this. At first it did not look as if the crypto industry would recover from the bitter setback: the end of FTX was followed by an indictment against the boss of its largest competitor, Binance, and at the end of November 2023 the company voted, among other things, for violations of money laundering -Provisions impose fines totaling $4.3 billion. CEO Changpeng Zhao then resigned.
Both cases have shown what machinations were previously possible in the unregulated crypto world. This has sparked a global debate about stricter regulation. At the beginning of January this year, the American Securities and Exchange Commission (SEC) finally approved so-called Bitcoin ETFs, which enable investors to invest in the cryptocurrency through traditional financial institutions. Since then, investors no longer have to trade on opaque crypto exchanges, but can trade Bitcoin like conventional funds through their bank.
The enthusiasm of investors can no longer be contained. More than half a billion dollars are said to have flowed into the Bitcoin ETF of the world‘s largest asset manager, Blackrock, in a single day. And ETFs for other cryptocurrencies are expected to follow soon. There is still little legal clarity about how risks such as fraud, manipulation and loss of assets should be treated. Nevertheless, Bitcoin has entered the world of classic financial products through the approval of ETFs.
More compensation thanks to the Bitcoin boom?
Bitcoin’s recent highs could also impact compensation payments to FTX customers. Initially, it was assumed that the dollar value of customer deposits would be paid out at the time of bankruptcy. But the crypto assets have multiplied in value since FTX went bankrupt; in November 2022, Bitcoin was “only” worth around $16,000.
According to the specialist journal “Banking Risk and Regulation”, the possibility of applying a so-called post-petition interest rate is being examined. This gives lenders the right to receive additional payment for the potential investment gains they have missed out on.
It’s not just the increase in the value of Bitcoin that plays into the hands of the cheated customers. The partial sale of FTX’s stake in the AI startup Anthropic could also bring in a few hundred million dollars net, which should further increase the insolvency assets. The hype is far from over when it comes to AI and Bitcoin – but Sam Bankman-Fried will no longer benefit from it.