.svg)
A New York jury has found Sam Bankman-Fried guilty of conducting one of the "biggest financial frauds" in US history, in a "pivotal" case for the crypto industry.
In a federal court in the Southern District of New York (SDNY), the jury took less than four hours to convict Bankman-Fried, who now faces up to 110 years in prison.
Bankman-Fried was found guilty of seven counts in total, including wire fraud and wire fraud conspiracy against both FTX customers and lenders to Alameda Research, the FTX-affiliated crypto trading firm.
In addition, the co-founder and former CEO of FTX was found guilty of conspiracy to commit securities fraud, conspiracy to commit commodities fraud and conspiracy to commit money laundering.
Damian Williams, US attorney for SDNY, said Bankman-Fried's conviction is a “warning to every fraudster” that no crime is too complex and no individual is too powerful to be above the law.
“Sam Bankman-Fried perpetrated one of the biggest financial frauds in American history — a multibillion-dollar scheme designed to make him the King of Crypto,” said Williams.
“But while the cryptocurrency industry might be new and players like Sam Bankman-Fried might be new, this kind of corruption is as old as time.
“This case has always been about lying, cheating and stealing, and we have no patience for it.”
Bankman-Fried’s sentencing hearing has been scheduled for March 28, 2024. This is subject to change, however, because he is still facing five additional criminal charges that were issued during his arraignment.
These include bribery conspiracy, bank fraud conspiracy, derivatives fraud, securities fraud and conspiracy to operate an unlicensed money transmitting business.
Bankman-Fried will remain in custody at the Metropolitan Detention Center in Brooklyn, New York, until his sentencing or next trial hearing, whichever comes first.
A year to the day
Bankman-Fried was convicted exactly a year to the day that a leaked balance sheet set in motion the collapse of FTX.
On November 2, 2022, an Alameda Research balance sheet showed that more than a third of the company’s $14.6bn in assets were tied up in the FTX Token (FTT), including loans backed by FTT.
Later that day, Binance CEO Changpeng Zhao announced that Binance would de-risk from FTT and sell its entire holding of the token, dropping its price 7.6 percent in one day.
Heavy selling then spread throughout the crypto markets, collapsing the price of other tokens that made up a large percentage of FTX’s loan collateral and liquid assets, such as Serum and Solana.
At the same time, investors began withdrawing their funds from FTX, creating a snowballing liquidity crisis for the exchange.
During that week, Binance entered an agreement for an emergency buyout of FTX, but later pulled out, leaving FTX to file for bankruptcy on November 11.
In total, more than 1m FTX customers are estimated to have lost $9bn as the platform collapsed.
An unusual trial
The Department of Justice (DOJ) indicted Bankman-Fried in December last year and he was arrested and extradited one month later.
By that time, FTX co-founder Gary Wang and former Alameda Research CEO Caroline Ellison had both pleaded guilty and had agreed to cooperate with the DOJ to convict Bankman-Fried.
Despite this, Bankman-Fried shocked the world by pleading not guilty to all charges. His trial by jury, which began on October 3, was wrapped up in just less than four weeks.
John Reed Stark, former head of internet enforcement at the Securities and Exchange Commission (SEC), said he was “not surprised” by the speed of the verdict.
“The prosecution did a brilliant job, and the evidence came from this incredible cadre of turncoat senior executives,” he said.
“I’ve never seen that many senior executives willing to work with the prosecution to give them everything they need.”
Renato Mariotti, former prosecutor and current trial partner at Bryan Cave Leighton Paisner, said Bankman-Fried took a gamble in pleading not guilty, and ultimately paid a high price for it.
“Bankman-Fried faced a very substantial prison sentence even if he pleaded guilty,” Mariotti told Vixio.
“Unlike the other defendants, he may have had no one to cooperate against, and it appears that he remains unable to accept responsibility for his actions.”
Legal and regulatory impact
With Bankman-Fried now facing the rest of his life behind bars, Stark said investors should not assume that their money is safe in the post-FTX crypto markets.
“People should not think that it’s now safe to go back in the water,” he said. “It’s not safe — this is just the tip of the iceberg.”
Attention will now turn to other entities in the crypto industry that are already in litigation with US regulators or are expected to be issued criminal charges.
As covered by Vixio, Binance has active cases with the SEC, the Commodity Futures Trading Commission (CFTC) and the Consumer Financial Protection Bureau (CFPB).
It has also been reported that the DOJ is building a sanctions evasion and money laundering case against Binance, and in recent weeks, US lawmakers have called for similar charges against Tether.
Delphine Chen, payments and crypto-assets consultant at Cosegic, said the Bankman-Fried verdict confirms the “low risk appetite” for crypto-asset activities among US regulators and the US justice system.
“It is a reminder for CEOs, directors and senior managers to be accountable for any weaknesses in the systems and controls of a firm,” she said.
“Not only are companies likely to face regulatory enforcement, but individuals too can find themselves criminally convicted.”
