Sam Bankman-Fried should serve at least 40-50 years in prison and pay a penalty of at least $11 billion plus forfeiture as a result of his “pernicious megalomania” and “unmatched greed and hubris”. That’s the view put forward by US prosecutors in a document filed late last week ahead of a sentencing decision expected later this month.

Bankman-Fried, the former CEO of crypto exchange FTX, was found guilty on seven counts of fraud and conspiracy in November at the end of one of the largest financial fraud cases in modern history.

Unprecedented scope of fraud

The 116-page document filed by the US Department of Justice’s Southern District of New York office pulls no punches in urging punitive sentencing. It says: “The enormous scale of the fraud at FTX is measured not just by the amount of money that was stolen, although the more-than-$8 billion of customer money that was misappropriated puts this crime in a class of cases that can be counted on one hand. The unprecedented scope of the fraud at FTX may also be measured in the number and types of victims, in the fraud’s geographic reach, and in the breadth and frequency of the unlawful and unethical acts undertaken by the defendant in service of a scheme to use other people’s money for his own benefit and influence.”

Listing the full extent of the crimes committed, the DOJ reminds the federal judge who will decide on sentencing that Bankman-Fried;

• stole from customers;
• lied to creditors;
• fabricated documents to lenders;
• made billions of dollars of illegal political donations; and
• bribed foreign officials.

The DOJ also draws attention to Bankman-Fried’s lack of contrition, pointing out that “even now [he] refuses to believe he was wrong”, and continues “unlike so many defendants before this Court, there are no persuasive mitigating conditions to explain his criminal conduct”. And it points out “the losses the defendant is responsible for are not borne exclusively by sophisticated investors or extrapolated based on a stock price drop”. The document devotes some time to detailing the severe losses some of the victims experienced.

His overall conduct demonstrates “a willful disregard for the rule of law”, says the DOJ, and the sentence needs to be “sufficiently severe to provide justice for the defendant’s crimes and to dissuade others from committing similar crimes, and that will permit the defendant to return to liberty only after society can be assured that he will not have the opportunity to turn back to fraud and deceit”.

The DOJ called its recommendation of an $11 billion penalty “a particularly conservative sum”, pointing out that Bernie Madoff was sentenced to 150 years in prison and a forfeiture of $170 billion when he was convicted in 2009.

FTX creditors

Bankman-Fried’s defense team has asked for a “just” sentence of 63 to 78 months, and argued that FTX creditors are likely to recover most of the funds. Prosecutors are arguing that the defense submission is “wholly inadequate” and pointed out that Bankman-Fried has not helped with efforts to recover funds.

Over $1 billion in assets has already been seized by the government, and 251 political candidates have returned more than $3 million in donations.

Sentencing is due later this month, and the case is being used by some as evidence that wrongdoing in the cryptosphere has now been purged. Journalist Joshua Oliver, who covered the trial for the FT and whose book Hype Machine: How Greed, Fraud and Free Money Crashed Cypto, disagrees, arguing in a fascinating article (£) in the FT that many of the issues surrounding the fall of FTX are still relevant.

Satoshi Nakamoto

Referencing the “good vibes” said to have returned to the crypto market after the SEC’s approval of crypto ETFs, Oliver observes that “the irony of this development is remarkable”. That’s because Satoshi Nakamoto’s original bitcoin white paper had the principle of decentralization at its heart. The white paper said explicitly that: “The main benefits are lost if a trusted third party is still required”. Yet the return of positivity to a sector that is arguably more reliant that most on a positive “vibe” is, says Oliver, “because Blackrock has opened a bitcoin fund that trades on the Nasdaq”.

That’s pretty centralized. And, as Oliver also observes: “Blackrock-managed funds also backed Bankman-Fried’s FTX with venture capital funding just over a year before it collapsed”.

Far from purging the cryptosphere of its demons, it could be argued that what the FTX case really does is bring more traditional financial considerations such as authority, confidence and responsibility to the fore.