Why Did Sam Bankman-Fried Plead Not Guilty?

The disgraced FTX and Alameda Research founder may simply be so deluded he actually thinks he's innocent - despite a mountain of evidence.

AccessTimeIconJan 4, 2023 at 5:29 p.m. UTC
Updated Jan 4, 2023 at 6:54 p.m. UTC
AccessTimeIconJan 4, 2023 at 5:29 p.m. UTCUpdated Jan 4, 2023 at 6:54 p.m. UTC
AccessTimeIconJan 4, 2023 at 5:29 p.m. UTCUpdated Jan 4, 2023 at 6:54 p.m. UTC

News broke on Tuesday that Sam Bankman-Fried, mastermind of the multibillion-dollar FTX-Alameda Research fraud, would plead not guilty to charges including conspiracy and wire fraud. Some, drawing on conspiratorial theories, have taken this as a sign that Bankman-Fried will pull strings with friends in high places to finagle his way toward acquittal.

The plea might well be strategic. Bankman-Fried might be holding out for an improved plea deal. Maybe he thinks a show of confidence can buttress public and investor faith in him or be enough to convince a jury of his innocence.

But an equally likely explanation for the decision to go to a trial in October is that Bankman-Fried and his allies are in a deep cocoon of delusion about the substance of the case. Regardless, he is exceedingly unlikely to win a verdict of innocence if things proceed to trial.

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In fact, Bankman-Fried could earn a longer sentence at trial than through a plea deal. His willingness to go to court may even suggest he wasn't offered a deal for pleading guilty or was offered a very bad one, which wouldn't be surprising given the apparent strength of the criminal case against him.

Perhaps most importantly, going to trial means that Bankman-Fried’s story will be entered into public records in detail. Through the discovery and trial processes, we’re going to learn an immense amount, not only about Bankman-Fried, but also about the behavior of others at FTX and Alameda – and quite possibly about external allies who are still in the shadows.

In short, Bankman-Fried’s not guilty plea is not a sign of elite conspiracy. It’s a further symptom of his and his family’s profound disconnection from reality and a gift that should be celebrated.

Don’t worry: He’s (almost certainly) going down

There are many reasons it’s nearly inconceivable that Bankman-Fried will be found innocent when his case goes to trial. To cite just one, FTX and Alameda executives Caroline Ellison and Gary Wang will be cooperating with prosecutors, and Ellison has already said she committed crimes at Bankman-Fried’s direction. There’s also the very simple and convincing fact that FTX customers' money is gone – it must have gone somewhere, and Bankman-Fried was in charge.

That Bankman-Fried would choose to fight the charges against him, despite the immense preponderance of evidence, invites speculation about hidden forces and malign influence. Bankman-Fried’s political donations in particular may invite speculation that he expects friends in high places to apply pressure to get him off.

But at the risk of sounding like a Pollyanna, that’s not how things generally work in the U.S. justice system. There are other, subtler forms of corruption and influence peddling, but they are mostly exercised at the systemic level. Once you’re at the stage of a trial, there’s only so much even a powerful political machine can do to get a single individual off, short of a post-facto presidential pardon.

Further, while crypto-centric observers may see him as some exceptionally influential string-puller in Washington, the truth is that in the grand scheme of political clout, Sam Bankman-Fried is a Johnny-come-lately and a bit of a small fry. Compare him, for instance, with Kenneth Lay, CEO of Enron. Lay was very close with George W. Bush and other powerful politicians for years, but that didn’t protect him from a 2006 guilty conviction for Enron’s fraud – while his good friend W. was a sitting president.

Similarly, Theranos CEO Elizabeth Holmes cultivated some of the most powerful people on the planet in a very intimate way for nearly a decade – Henry Kissinger, a veritable Dark Lord of U.S. influence and power, sat on her board of directors. Compared with Holmes’ buddying up to Kissinger, Bankman-Fried’s seemingly close relationship to U.S. Securities and Exchange Commission Chairman Gary Gensler is inconsequential. And even Kissinger couldn’t help Holmes avoid a prison sentence.

There are exceptions to America’s willingness to jail high-profile financial and business fraudsters. That includes many cases during the Obama administration in the wake of the Great Financial Crisis. John Corzine, a former U.S. Democratic senator from New Jersey, for instance, skated away with a fine from the Commodity Futures Trading Commission for engaging in exactly the sort of malfeasance Bankman-Fried is accused of – stealing customer deposits.

Elite delusion

But if Bankman-Fried isn’t banking on help from powerful friends, why on earth would he roll the dice on a criminal trial? The answer is simple: He, and perhaps his parents, appear to be deeply delusional about his guilt.

That was manifested during his “speaking tour” after FTX’s collapse but before his arrest. Bankman-Fried defied the advice of his lawyers and spoke, if not frankly, then at least at length about his actions and state of mind up to and during the collapse of his crypto exchange. He declared again and again that he didn’t believe he had engaged in fraud.

That might sound absurd to those who have examined the details of the case, and Bankman-Fried was repeatedly evasive when pressed on specifics that seem to be clearly fraudulent. But it would be too simple to say that Bankman-Fried was merely putting on a front, that his protestations of innocence were entirely a conscious bit of four-dimensional chess.

Instead, I believe that Bankman-Fried is deep in a stew of fantasy, denial and double consciousness. I believe that much of this is rooted in his upbringing by parents who not only harped on the philosophy of ethics, but almost certainly showered baby Sam with affirmations of his own goodness and brilliance.

Sam Bankman-Fried’s self-image, in other words, is of a both gifted and good person. We are watching that clash with the reality of his behavior: that of a conniving, stimulant-addicted screw-up.

We saw signs, during hearings in the Bahamas, that his parents are struggling in similar ways to reconcile their idea of their son with the reality of his actions. Barbara Fried, Sam’s mother, was seen laughing at descriptions of her son as a criminal.

Even in the midst of conducting his fraud, Bankman-Fried likely believed that the corners he was cutting were justified by some larger set of good intentions. That mindset may have been reinforced by the ethos of "Effective Altruism" that he professed (however disingenuously).

No one, it’s often said, thinks of themselves as the villain. Resistance to that grim self-assessment may be strongest among those who have spent their lives surrounded by affirmations of privilege and virtue.

It is no tragedy that we will get to watch reality driven home to Sam Bankman-Fried by society’s ultimate educational institution: the justice system.

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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.