Sam Bankman-Fried, the former CEO of bankrupt cryptocurrency exchange FTX, presided over a spectacular crash that cost his clients billions of dollars. He argues in court cases that everyone who owes money to FTX “will eventually be paid in full.” The US government says he lives in a fantasy land.
FTX’s caretaker, John Ray III, who was appointed last week to oversee the company’s bankruptcy proceedings, reminded the court that Bankman-Fried had planned a “colossal fraud” and lived a “life full of dreams” and expressed the claim of Bankman-Fried’s lawyers as follows: no one was harmed on the grounds that it was “categorically, rigidly and patently wrong”.
Relating to: The rise and fall of Sam Bankman-Fried: An unrepentant former boss faces decades in prison
Bankman-Fried faces sentencing on Thursday after being found guilty of conspiracy to commit fraud and money laundering in the multibillion-dollar collapse of the cryptocurrency exchange. If given the maximum sentence, he faces 100 years in prison. His lawyers demanded a 6-year prison sentence. The US government wants the 32-year-old former CEO who defrauded his own clients of $8 billion to be sentenced to 40 to 50 years in prison.
Justice Department lawyers argue that Bankman-Fried’s sentencing submission shows efforts to “reframe her crimes as simple mistakes or misunderstandings” and that if she is released at a young age, there is a “significant possibility” she will commit another fraud.
Whatever sentence Judge Lewis Kaplan imposes on Bankman-Fried, FTX’s bankruptcy proceedings have become as contentious as its founder’s blockbuster trial. They will likely continue long after they are incarcerated.
FTX: new technology, old-fashioned embezzlement
The crypto entrepreneur has pulled a smokescreen by spending millions of client funds on his lifestyle, attracting politicians and celebrities with donations and endorsement deals, and paving the way for an effective pseudo-philosophy of altruism where the greater the profit, the greater the good.
Last year, Ray testified to Congress that FTX’s collapse was “really good old-fashioned embezzlement.” “This is just taking money from customers and using it for your own purposes.” Justice Department prosecutors echoed Bankman-Fried’s statements immediately after his conviction.
At the hearing, the court heard from an accounting expert who said $11.3 billion in client funds should have been held by FTX’s hedge fund arm, Alameda Research. However, only 2.3 billion dollars could be found. The rest went to investments, political contributions, charitable foundations and real estate purchases. Remarkably, FTX left almost no transaction records.
“The damage was enormous. There is no regret. Effective altruism, at least as experienced by Samuel Bankman-Fried, was a lie,” Ray said in a recent court submission, adding that he and his team “spent more than a year managing the estate from a metaphorical dumpster fire.”
In the event of FTX’s bankruptcy, who will be paid and how?
FTX collapsed within ten days in November 2022 and soon filed for Chapter 11 bankruptcy, a law used to reorganize a failing company “in the public interest.” FTX’s main product, the exchange, was shut down rather than reorganized.
On January 31, FTX announced that it would not reopen its exchange and would instead liquidate all its assets. It promised to pay account holders the value of the deposited cryptocurrency in dollars.
However, following Bankman-Fried’s departure, a number of civil lawsuits were filed against decisions made under FTX’s management. The company said it would pay creditors based on the value of their cryptocurrencies during FTX’s bankruptcy, when Bitcoin was trading at just over $17,000. Bitcoin is now four times more valuable and trading above $67,000. Plaintiffs argue that FTX owes them greater value.
Bankman-Fried invested $500 million in artificial intelligence startup Anthropic, which is valued at $3.4 billion. It is currently valued at around $15 billion, and if FTX is liquidated, the stake could be worth $2 billion.
Relating to: FTX cancels stock market revival plan and will refund customers billions of dollars
In a lawsuit filed in January, four FTX creditors said the plan to return customer funds did not reflect the company’s obligations under Chapter 11 bankruptcy law. Some have objected to “dollarization,” the conversion of crypto assets into dollars, and the transparency that comes with it.
Last week, Ray brushed aside the controversy over visibility. The CEO said he could not return crypto assets because they did not exist. “The jury concluded beyond a reasonable doubt that Mr. Bankman-Fried stole them and converted them into other things,” he wrote in a court filing.
Moreover, FTX’s bankruptcy allegations became a hot topic after London-based distressed asset investor Attestor purchased the company’s assets at rock-bottom prices. The plaintiff is currently in a New York court defending himself against a Panamanian FTX account holder and seeking to have his bankruptcy claim (now worth more than double) withdrawn.
FTX shareholders gain nothing
One class of creditors is unlikely to see their money returned: FTX shareholders. Millions of shares were held by Tiger Global management, the Ontario teachers’ retirement plan, Sequoia Capital, New England Patriots owner Robert Kraft, NFL quarterback legend Tom Brady and his ex-wife Gisele Bündchen, who promoted the company. Its shares, once worth tens of millions of dollars, are now assumed to be worthless.
Bankrupt FTX likewise had little success in recovering Bankman-Fried’s philanthropic and political donations; This includes $44.6 million going to Democratic candidates and causes in the last election cycle and at least $23.9 million going to Republicans. FTX made political donations totaling $93 million between March 2020 and November 2022. In February 2023, the exchange demanded the return of its donations, claiming that it would file a lawsuit, but did not follow through on the threat.
But some of those who benefited from FTX’s PR largesse returned their donations, using some pretense to influence crypto-related regulations: New York’s Metropolitan Museum of Art returned $550,000 it received from FTX in 2022. Stanford, where Bankman-Fried’s parents worked as professors. Legal Ethics promised to return the $5.5 million donation.
Academics raise questions about FTX bankruptcy
A recently published academic paper alleges that FTX was placed in the hands of legal counsel Sullivan & Cromwell, which had “undisclosed potential conflicts of interest” due to “obvious errors, omissions, and deceit” in its dealings with the company and Bankman-Fried. .
Law professors Jonathan Lipson of Temple University and David Skeel of the University of Pennsylvania say FTX is “a cautionary tale about the power lawyers have to frame, control, and profit from public interest claims” and that bankruptcy involves “bargaining.” they claim. -sale of basement assets to privileged insiders”.
In their paper, the academics called for an independent auditor to be appointed to examine how sudden bankruptcy was handled.
“It does not appear in the public record that they are making any serious effort to restart swaps,” Lipson told the Guardian. “Sullivan & Cromwell had an unusually long and significant relationship with FTX and Bankman-Fried before the bankruptcy, so our concern is that the emergence of a conflict of interest could cause them to panic and mislead Bankman-Fried into giving up control of the company. “It may also have distorted the criminal case and harmed depositors and creditors.”
‘Salvation story’
In an exchange with Vox reporter Kelsey Piper, Bankman-Fried appeared to undermine the effective ideology of altruism she once espoused.
“I feel sorry for those who are getting fucked because of this stupid woke game that westerners play, where we say the right slogans and everyone loves us.”
Relating to: Dramatic downfall for Sam Bankman-Fried and his ‘messy visionary’ persona
Last month, the SBF replaced its trial lawyer with Marc Mukasey, who represented Donald Trump and another boss accused of fraud, Alex Mashinsky, the former CEO of the bankrupt cryptocurrency exchange Celsius. Mukasey described Bankman-Fried as a hard-working billionaire who avoids the trap of great wealth and fame and whose gruff social demeanor can be attributed to “neurodiversity”.
In January, Yale Law professor Ian Ayres and Stanford Law professor John Donohue, two friends of the Bankman-Fried family, published an article in Project Syndicate making the case that FTX had enough assets to integrate its clients.
Daniel Chapsky, FTX’s former head of data science, wrote that SBF was only interested in helping bankruptcy lawyers and “worked almost around the clock, until it was exhausted.”
However, the government withdrew these efforts. “The point is that the defendant is motivated to start his redemption story and is already thinking about how to twist it. It is realistic for him to rely on a narrative, lean into it, and persuade other people to part with their money based on lies and the false promise of hope, prosecutors wrote in a filing.