Understanding the Charges Brought Against Sam Bankman-Fried

The SEC, CFTC and DOJ treat the FTX founder as an ambitious and calculating criminal.

AccessTimeIconDec 14, 2022 at 3:51 p.m. UTC
Updated Sep 28, 2023 at 2:28 p.m. UTC
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I was about to get on a plane late Monday when the arrest of FTX and Alameda Research founder Sam Bankman-Fried in the Bahamas first became public. His profound and manifold criminality has been obvious for weeks, with more signs of disturbing corruption seeming to emerge daily.

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Despite the torrent of obscene revelations, there has been concern that Bankman-Fried’s recent media blitz, in which he portrayed himself as inept rather than malevolent, would succeed in softening the legal and regulatory response. A few misguided or bought-out voices have made statements sympathetic to Bankman-Fried. That has left everyone with a shred of decency and good sense gritting their teeth and hoping the dimwits and shills don’t get control of the narrative, possibly helping one of the biggest malefactors of our or any era evade consequences.

Well, we can breathe a sigh of relief. Charges filed over the past two days make clear that the U.S. government is treating Bankman-Fried as the ambitious and calculating criminal that he is, not as merely a bumbling tech wunderkind who made some bad bets. A laundry list of incredibly serious civil and criminal charges have come from three U.S. agencies: the Securities and Exchange Commission (SEC), the Commodities Futures Trading Commission (CFTC) and, most importantly, the Department of Justice (DOJ).

The charges are comprehensive, and the theory of the case presented is unambiguous – all of the agencies claim that Sam Bankman-Fried knowingly and with significant forethought committed fraud on a scale only comparable to history’s most elaborate cons. FTX will be remembered alongside not just Enron, but the Credit Mobilier scandal of the 1860s-1870s and the South Sea swindle of the 1720s.

It turns out Sam Bankman-Fried was not a genius of crypto or finance, but he was unambiguously a kind of idiot savant of financial crime. There is a very good chance that he will never breathe free air again.

The charges

The three primary sets of charges are distributed according to the purview of the three charging agencies. The SEC supervises securities, and its charges focus on Bankman-Fried’s fraud against equity investors rather than against customers. Those charges will almost certainly result in huge fines and Bankman-Fried’s being barred from the financial industry, probably for life.

The SEC largely echoes the outline of the crimes I laid out a couple of weeks ago. The agency alleges, in part, that “Bankman-Fried orchestrated a years-long fraud to conceal from FTX’s investors the undisclosed diversion of FTX customers’ funds to Alameda Research LLC … the undisclosed special treatment afforded to Alameda on the FTX platform [and] undisclosed risk stemming from FTX’s exposure to Alameda’s significant holdings of overvalued, illiquid assets such as FTX-affiliated tokens.”

The CFTC basically oversees market structure, and the agency’s charges are focused on Bankman-Fried’s core crime: the commingling of depositor funds between FTX and the hedge fund Alameda Research. These are also civil charges that would mainly lead to monetary penalties.

But why pretend? What we really care about are the criminal charges, filed by the U.S. Department of Justice in the Southern District of New York. They are unbelievably extensive and serious, with wire fraud, conspiracy and money laundering making up just three of the eight total charges. The charging documents are reportedly vague on purpose, to give prosecutors leeway to assemble a case and specific allegations as their investigation progresses.

Partly because of that vagary, there have been varied estimates of the jail time Sam Bankman-Fried might face. But the litany of criminal charges seems to affirm previous estimates that he could, at least in theory, be in prison for the rest of his life.

He could get off easier if he is offered and chooses to accept a plea deal from prosecutors, but even such a deal would almost certainly involve many years of prison time. A plea deal would normally be quite likely, but there are two headwinds here. First, Bankman-Fried appears to be in a self-induced state of delusion; specifically, he seems to think he really did nothing wrong. That may lead him to pursue a jury trial instead of a deal, which is certainly what I’d love to see, too.

But there’s also no guarantee that Justice will offer a plea deal. It’s common for even very serious crimes, but public outrage about FTX has been so intense that the Biden administration could conceivably push for a high-profile prosecution to appease a furious public.

As many predicted, FTX being located in the Bahamas rather than the U.S. seems to have earned Bankman-Fried little protection. The DOJ’s criminal fraud charges, for instance, are based on an email sent to an investor in the Southern District of New York on Sept. 18 containing materially false information about FTX’s financial condition. Presumably, the email claimed that the company was thriving when in fact it had already been wrung dry by the criminals in charge.

And so the incredible downfall of Sam Bankman-Friend and his fraudulent empire progresses to a slower, more methodical stage. There will be more horrendous skeletons in the closet (I’m particularly curious to learn more about what was really going on at all those nonprofits).

But the general path of events from here has been set, and it will not end well for Sam Bankman-Fried. As you read this, he is in a maggot-infested Bahamian prison, awaiting what I hope will be a rapid extradition to a high-security facility in the United States. He must be adequately protected until he stands trial or reaches a plea deal.

So, bon voyage to the former wonder boy. In a life defined by big bets, he made the wrong ones, again and again.


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David Z. Morris

David Z. Morris was CoinDesk's Chief Insights Columnist. He holds Bitcoin, Ethereum, and small amounts of other crypto assets.

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