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The FTX Saga Twist That Might Save SBF in Sentencing
March 7, 2024

The FTX Saga Twist That Might Save SBF in Sentencing

Reading Time: 6 minutes

He could still get up to a century in prison., How many years will SBF get in prison? That depends on what the judge thinks of FTX’s recent turnaround.

Sam Bankman-Fried is due to be sentenced on March 28 for his litany of federal fraud convictions. It is probably going to be ugly. Exactly how ugly? We have a better idea now than we did a few months ago.

At his trial last fall, the founder of the melted-down FTX crypto exchange lost on all seven fraud and money laundering charges he faced. The story that emerged was one of Bankman-Fried not as an oaf who made mistakes but as a mastermind who manipulated a whole scheme to defraud lots of people out of lots of money. Roughly $8 billion of FTX customer funds went to Bankman-Fried’s hedge fund, which lost it, even as Bankman-Fried advertised his exchange as a responsible steward of his customers’ assets. The convictions carry the potential of more than 100 years in prison, and Bankman-Fried is such an unsympathetic convict that at first glance there’s no reason to expect anything less than a decadeslong stint behind bars. In a presentencing report, a probation officer recommended to the judge that SBF get exactly 100 years, and those reports tend to be influential.

But something surprising has happened since Bankman-Fried’s conviction: The professionals running FTX’s bankruptcy have started to sound optimistic that the exchange’s customers and creditors would get all their money back, ostensibly thanks to a mixture of continually rebounding crypto prices, the bankruptcy team’s work to get a handle on FTX’s finances, and some of FTX’s equity investments performing well. It’s ‘not a guarantee, but an objective,’ one of the company’s lawyers told a Delaware court in late January.

Unsurprisingly, Bankman-Fried’s lawyers argue that this development should be a factor in meaningfully lowering his sentence. ‘The harm to customers, lenders, and investors is zero,’ they wrote in a filing to the judge on Feb. 27. The lawyers further argue that Bankman-Fried was just one player in a crime that did not wind up costing his customers and creditors. They say Bankman-Fried is ‘a non-violent offender, who was joined in the conduct at issue by at least four other culpable individuals, in a matter where victims are poised to recover—were always poised to recover—a hundred cents on the dollar.’ Bankman-Fried, who just turned 32, has officially requested a sentence of between 63 and 78 months, which would net out to no more than six and a half years. If he served 85 percent of that sentence and received parole, he’d be out in five and a half—perhaps fewer, if the court gave him credit for time spent in jail over the past year.

On the surface, it sounds somewhat reasonable: If Bankman-Fried’s crimes won’t wind up costing other people anything close to what everyone thought, shouldn’t he get a lighter sentence? Maybe! But there are a lot of ‘buts’ to consider, ‘buts’ that could get in the way of Bankman-Fried’s hopes.

‘I’d be surprised if he didn’t receive a significant sentence, but I definitely don’t think it’s certain that he’s going to get a life sentence or the equivalent of a life sentence,’ Rachel Maimin, who is a former assistant U.S. attorney in the same office that prosecuted Bankman-Fried, told me. Maimin, who has appeared in Kaplan’s courtroom, said the judge would lean on his impressions of Bankman-Fried from before and during his trial and the presentencing report. ‘All of those facts make up a mosaic,’ she said.

Of all the arguments Bankman-Fried’s lawyers make in their 90-page sentencing submission to the judge, the one about the (likely) lack of customer and creditor loss is the strongest. The lawyers argue that FTX did not face a solvency crisis but a liquidity crisis, echoing a point Bankman-Fried made as soon as FTX started to circle the drain in the fall of 2022. Back then, that was a distinction without a difference: The root of the company’s financial problems was that FTX loaned gobs of customer money to an SBF-run hedge fund, which invested it in dubious coins that were tied to confidence in FTX’s business. Those coins did not trade much on the open market, and FTX’s woes tanked their value.

But FTX’s financial situation has improved in bankruptcy. Crypto prices have gone up in general, making FTX’s holdings drastically more valuable. A few of Bankman-Fried’s investments have done very well. And, critically, the restructuring experts now in charge of FTX have had time to untangle what they describe as a recordkeeping catastrophe. (The CEO leading FTX’s bankruptcy also led Enron’s and thinks Enron did some things better.) One of the lawyers now helping to run FTX says that paying back all the people FTX owes ‘will be one for the history books’ thanks to the extent to which SBF left the company ‘in the dumpster.’

Bankman-Fried’s team makes other points that may or may not land. The lawyers say he is ‘already being punished,’ citing bad conditions in the jails he’s lived in over the past 18 months and lots of (often antisemitic) harassment. (They don’t mention that SBF also went from being one of the richest young people in the world to being either broke or close to it.) His team also argues that Bankman-Fried’s autism spectrum disorder ‘would render him extraordinarily vulnerable to abuse in prison’ from both other inmates and guards. Bankman-Fried’s mother, in her own letter, says that ‘he is bad at responding to social cues in ‘normal’ ways’ and would not find rehabilitation in a long sentence. ‘Being consigned to prison for decades will destroy Sam as surely as would hanging him, because it will take away everything in the world that gives his life meaning,’ she writes.

Her correspondence is a difficult read. But like every other argument, it may not work.

‘Defendants very frequently call into question the damage that was actually done to victims,’ Maimin said. But that doesn’t always pan out, because ‘the sentencing guidelines are not just based upon loss. They’re based upon intended loss. If the jury found that he purposefully committed fraud in a certain amount, even if he didn’t succeed, his guidelines range would still be the same. In the eyes of the judge, that might be a mitigating factor, but it also might not, because that has nothing to do with the defendant’s conduct. It has to do with a factor beyond the defendant’s control: the crypto market.’

Maimin said that his team’s alarms over Bankman-Fried’s potential treatment in prison are ‘unlikely to succeed,’ given that prisons have formal structures in place to process inmates with all sorts of conditions. A prison abolitionist and a federal judge may not have the same view of how effective those systems are at providing an acceptable life for incarcerated people—and guess which one will decide the sentence.

Bankman-Fried is also fighting against a tough presentencing report, which recommends that he get a century behind bars. Often, judges’ sentences align closely with those recommendations, Maimin said, which are based on the defendant’s probation officer’s investigation and report. The report, Maimin said, typically gives a judge insight into a defendant that the judge didn’t have at trial.

And about that trial: Bankman-Fried, in addition to being guilty, was an enormous pain in the ass for Kaplan. After Bankman-Fried spent most of his trial prep under house arrest, Kaplan had him put in jail for the final two months before his trial began. He did that because Bankman-Fried used a virtual private network to access the internet, shielding his activity from the court. Prosecutors also believed that Bankman-Fried tried to tamper with witnesses and leaked the private diary entries of one to the New York Times. Bankman-Fried’s testimony during the trial made him look like a liar, which could be its own aggravating factor.

‘If you commit perjury during your trial, I think any judge is going to take that into account at sentencing,’ Maimin said. ‘It’s a perversion of the legal system. It’s one of the most serious nonviolent crimes that you can commit, because the jury is there, you’ve sworn an oath to tell the truth, and then you lie. Here, I think you can infer that he lied and that the jury found that he was lying, because they didn’t believe him and they convicted him.’

So, to recap: In Bankman-Fried’s favor, it looks like his crimes may not wind up wiping out thousands of investors. But working against him is a long pattern of behavior that seems designed in a lab to infuriate a judge, who may also choose to lean on a presentencing report that says to throw the book at Bankman-Fried. ‘I think it’s hard to predict, but I’d be surprised if it weren’t a significant sentence,’ Maimin said. Bankman-Fried is in danger of learning that there isn’t exactly a good way to come up for sentencing on seven federal felonies.


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