Sam Bankman-Fried could face years in prison for FTX collapse
Zachary Halaschak
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FTX founder Sam Bankman-Fried could end up behind bars for years, although much needs to happen first as federal entities probe the company’s spectacular collapse.
FTX’s downfall has resulted in investigations by the Securities and Exchange Commission, the Department of Justice, the Commodity Futures Trading Commission, and the U.S. Attorney’s Office for the Southern District of New York. They are looking into whether Bankman-Fried or his colleagues knowingly committed fraud in the lead-up to the collapse, a conviction that could result in significant jail time.
The FTX implosion is one of the biggest ever in the cryptocurrency realm and caused other major companies to fall, costing some their life savings. FTX was valued at $32 billion in a financing round before the collapse this year and was also the third-largest cryptocurrency exchange by volume, after Binance and Coinbase.
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Braden Perry, a partner at Kennyhertz Perry and a former senior trial lawyer for the CFTC, told CNBC that it is difficult to gauge how long Bankman-Fried could spend in prison should he be successfully tried and convicted, but given the sheer magnitude of the collapse, Bankman-Fried could face the prospect of spending the rest of his life behind bars.
Federal sentencing guidelines are complicated and rely on a numerical system, plus there are enhancements and mitigating factors at play.
“The dollar value of loss plays a significant role. Under the guidelines, any loss above $550 million adds 30 points to the base-level offense,” Perry said, noting that the number of victims involved adds points.
Perry contends that the enhancements in Bankman-Fried’s case could be enough to sentence him to life in prison on just a single wire fraud charge.
“In practice, many white-collar defendants are sentenced to lesser sentences than what the guidelines dictate,” Perry said.
Bankman-Fried was once one of the wealthiest people in the cryptocurrency world, worth more than $15 billion this year. As FTX and associated hedge fund Alameda Research crumbled around him, Bankman-Fried’s wealth plummeted, marking the biggest one-day decline among the billionaires that Bloomberg keeps track of.
Experts say that in addition to jail time, Bankman-Fried could face a bevy of civil fines.
“Depending on what is discovered as part of the investigations by law enforcement and the civil authorities, you could be looking at both heavy monetary penalties and potential incarceration for decades,” said Richard Levin, a partner at Nelson Mullins Riley & Scarborough.
Despite the specter of significant jail time, Bankman-Fried has not shied away from the media, which once extolled him as a genius tech guru out to improve the world. He recently appeared for an interview with CNBC’s Andrew Ross Sorkin from an undisclosed location in the Bahamas and appeared nervous as he spoke and was fidgety when answering questions.
“I didn’t ever try to commit fraud on anyone. I saw it as a thriving business, and I was shocked by what happened this month,” the disgraced FTX founder said.
During the interview, Bankman-Fried demurred when he was asked if he was concerned about facing criminal charges as a result of the collapse.
“I don’t think that — obviously, I don’t personally think that I have — I think the real answer is it’s not — it sounds weird to say it, but I think the real answer is it’s not what I’m focusing on. It’s — there’s going to be a time and a place for me to think about myself and my own future. But I don’t think this is it,” Bankman-Fried said.
The House Financial Services Committee will hold a hearing next week to examine the cryptocurrency company’s descent into bankruptcy. The committee expects to hear from the companies and people involved, including Alameda Research, Binance, FTX, and others.
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Committee members had wanted to hear from Bankman-Fried himself, although he appeared to pour cold water on that prospect, tweeting that he might not be ready to testify on the date set for the hearing.
“Rep. Waters, and the House Committee on Financial Services: Once I have finished learning and reviewing what happened, I would feel like it was my duty to appear before the committee and explain. I’m not sure that will happen by the 13th. But when it does, I will testify,” Bankman-Fried said.