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Sam Bankman-Fried’s 25-year jail sentence marks a milestone in crypto history. While the high-profile fraud scandal struck a major blow against the industry’s reputation, the delivery of justice sends a signal that the “Wild West” days are over.
The former CEO of FTX was sentenced last week. He had been found guilty on multiple counts of fraud in November 2023, a year after the crypto exchange collapsed.
Prosecutors had sought a sentence of 40 to 50 years, based primarily on the harm done to thousands of victims of FTX who, the court accepted, collectively lost around $8bn.
The defence, on the other hand, argued that no more than seven years would be appropriate, due to Bankman-Fried’s autism, his claimed lack of criminal intent and his young age.
On March 2 this year, the former billionaire turned 32 while awaiting his sentencing hearing in a Manhattan jail cell.
During sentencing, Judge Lewis Kaplan said he was not convinced that Bankman-Fried is a “virtuous” person, as described by his counsel, who did not intend to defraud customers, lenders and investors.
Judge Kaplan also noted that Bankman-Fried had interfered with witnesses, including his ex-girlfriend, former colleague and co-conspirator Caroline Ellison, and had perjured himself three times during the trial.
Nonetheless, the judge Bankman-Fried as an “extremely smart” person who was “aware of his talents”, despite his “social awkwardness” and his autism.
He was “exceptionally ambitious”, the judge , which motivated him to undermine regulators while toying with the idea of running for President.
For example, Judge Kaplan testimony from Ellison that Bankman-Fried had donated to causes promoting crypto regulation for its “PR” value, while at the same time telling others that his real position was “f*ck the regulators”.
Too egregious to appeal
Andrey Spektor, former federal prosecutor for the Eastern District of New York and current partner at BCLP, spoke with ϲʿ¼ about the appropriateness of Bankman-Fried’s sentence.
“This was a harsh sentence, but a humane one,” he said. “It allows Bankman-Fried to have a life outside of prison — one day — but anyone who is familiar with the federal prison system will not see the sentence as some sort of break.”
Bankman-Fried’s counsel has already indicated that they will appeal the sentence, but Spektor said the chances of a successful appeal are low.
“Bankman-Fried has good lawyers, and they will find issues from the trial record to appeal,” he said.
“But if the conviction stands, this sentence will be difficult to overturn, especially if the Court of Appeals agrees with the Guidelines calculation.”
In February this year, a pre-sentence report compiled by the US Probation Office had recommended a 100-year prison sentence for Bankman-Fried.
Describing the recommendation as “astronomical”, Spektor said it was “rightly disregarded” by the prosecution.
But with Judge Kaplan opting for a sentence far below the recommendation, it will be “virtually unassailable” on appeal, he added.
Compliance pros welcome sentence
Among digital asset companies and compliance professionals, the harsh sentence was seen as the best course of action, both for the victims of FTX and for the wider industry.
Gene Grant, co-founder and CEO of LevelField, a US financial services and digital asset firm that is currently seeking regulatory approval for a bank acquisition, said there is no better signal that the industry’s “Wild West” days are over than sending its worst offenders to jail.
The “criminal element” of CEOs such as Bankman-Fried and Changpeng Zhao, the former boss of Binance who made a plea deal with US prosecutors in November, must be eliminated for the industry to progress, Grant argued.
"A fair market is a necessary condition for widespread adoption of the digital asset class,” he said. “Volatile markets are attractive to traders, but rigged markets are not.
“The clean-up of the players is an important step to the establishment of digital assets as a recognised asset class."
Grant added that digital asset platforms of the future will be well-managed, transparent and will operate according to applicable regulations.
“There will be a transition period as some of the early movers hang on,” he said, “but the trend is irreversible.”
Luke Raven, a senior partner for financial crime compliance at the Bank of Queensland, said he has also observed a “maturing” of the industry towards its compliance obligations.
Nevertheless, he said, if bad actors are to be stopped before major losses are incurred, there needs to be a more globally coordinated approach to tackling crypto crime.
“Regulation has its limits,” he said. “It’s a good enough tool for capturing those with a broadly compliant intent, but next to useless when it comes to willful lawbreaking.”
The loophole by which exchanges can park themselves in offshore jurisdictions and serve customers all over the world, for example, must be closed.
In FTX’s case, the Bahamas was the offshore jurisdiction of choice. FTX Digital Markets was of FTX Trading Ltd., owner and operator of FTX.
According to , FTX Digital Markets was the main regulated and licensed entity for the FTX International Platform, while the US exchange served as a separate platform (the global and the US platform have two separate bankrputcy proceedings ongoing).
Through FTX Trading, Sam Bankman-Fried created a cat’s cradle of — some with no corporate governance, no board of directors and no management structure — serving more than .
In sum, Raven said the demise of Bankman-Fried and Zhao sends a message that when the crypto industry fights the law, the law wins. This will deter bad actors and incentivise good actors to do better.
“The appallingly lax attitudes of FTX and Binance don’t necessarily represent the future of crypto firms broadly, in the same way that Wirecard didn’t set new norms in payments,” he said.
