Tech and Science

Before the verdict is announced, the SBF team argues for 5-6 years in prison because FTX customers get money back

Government demonstration in the case against former FTX CEO Sam Bankman-Fried.

Source: SDNY

While prosecutors want FTX founder Sam Bankman-Fried to spend 40 to 50 years in prison for his crimes, the defense team is urging the judge to consider a sentence about 90% shorter.

Bankman-Fried’s fate will be announced Thursday morning in Manhattan by Judge Lewis Kaplan, who presided over the month-long trial in November. Bankman-Fried was found guilty of seven charges related to the collapse of crypto exchange FTX and the loss of around $10 billion in customer deposits.

The Bankman Fried team’s hope is that Kaplan will take into account the increased likelihood that FTX customers will be able to recover most, if not all, of the money they lost when the exchange went bankrupt in 2022.

Lawyers representing FTX’s bankruptcy estate told a Delaware judge last month that they expect to fully repay customers and creditors with legitimate claims. Bankruptcy lawyer Andrew Dietderich, who is working with FTX’s new leadership team, said that “there is still a lot of work and risk ahead” to get all the money back to customers, but that the team has a “strategy to make it happen “.

It was a potentially dramatic shift in the narrative surrounding FTX’s collapse 16 months ago. At the time, it was believed that many thousands of customers – reportedly up to a million – collectively lost billions of dollars that would be irretrievable due to the poorly regulated and unsecured nature of the crypto industry. These clients faced the real possibility that most of their money had evaporated, just as in other cases of hedge funds and lenders that failed during the so-called crypto winter of 2022.

Much of the government’s successful case against Bankman-Fried depended on convincing the jury that the defendant stole billions of dollars’ worth of FTX customer funds to make risky bets at Alameda.

As FTX fought its way through a Delaware bankruptcy court for months, new CEO John Ray III and his team of restructuring advisors recovered cash, luxury real estate and cryptocurrencies and tracked down missing assets. They’ve already raised more than $7 billion, and that doesn’t include valuables like $26 million in gifts and property belonging to Bankman-Fried’s parents Handed over $700 million to K5 Global and founder Michael Kiveswho invested FTX cash in companies like SpaceX, which have since increased in value.

Bankman-Fried’s defense team has asked the court for a prison sentence of between 63 and 78 months. Aside from the fact that he is a “first-time, non-violent offender,” the FTX founder’s lawyers are largely relying on the argument that Bankman-Fried’s risky bets have paid off and the bankruptcy estate expects to repay FTX customers in full .

It’s a story that Bankman-Fried tried to sell while awaiting trial.

“FTX US remains fully solvent,” Bankman-Fried wrote in a Substack post on January 12, 2023, while under house arrest at his parents’ home in Palo Alto, California. He said the exchange “should be able to return all customer funds.”

Prosecutors are recommending a prison sentence of 40 to 50 years for Sam Bankman-Fried for FTX fraud

A key asset in FTX’s portfolio is its stake in artificial intelligence startup Anthropic. Late last week, FTX’s bankruptcy estate struck a deal with a consortium of buyers to sell the majority of its Anthropic holdings for $884 million. Under Bankman-Fried’s leadership, FTX invested $500 million in the startup in 2021 ahead of the generative AI boom. The company’s valuation reached $18 billion in December 2023, which would make FTX’s approximately 8 percent stake worth about $1.4 billion.

During Bankman-Fried’s trial, Kaplan denied the defense’s request to be allowed to say that FTX’s investment in Anthropic was a smart bet.

“Still guilty”

Renato Mariotti, a former prosecutor in the U.S. Department of Justice’s securities and commodities fraud division, told CNBC that the more money the estate can collect for its clients, the better it is for Bankman-Fried.

“If that is true, that is relevant and the judge is obliged to take the victim’s restitution into account when making the sentence,” Mariotti said. “But even if no harm was caused to the victims, he is still guilty of the crime.”

Mariotti said he expected the sentence to be somewhere between what the prosecution and defense were asking for, and predicted it would be “at least 20 to 25 years.”

Joseph Bankman and Barbara Fried arrive at the federal courthouse in New York City, United States, on October 26, 2023, for the trial of their son, former FTX boss Sam Bankman-Fried, who faces fraud charges stemming from the collapse of the bankrupt cryptocurrency exchange.

Brendan Mcdermid | Reuters

In addition to Anthropic gains, FTX clients can pay attention to the cryptocurrency recovery for signs of optimism. Bitcoin is trading at nearly $70,000, down from less than $17,000 at the time of the FTX collapse.

In September the insolvency team published a status report This shows that FTX had $3.4 billion worth of digital assets, with over $1.1 billion coming from investing in crypto coins Solana. In the The defense’s most recently submitted letter to the court Month, lawyers note a significant increase in the value of FTX’s Solana share, saying that the estate saw a significant increase on February 26th Increase of around $4 billion in the last six months thanks to the appreciation of the token.

Solana belongs to the so-called “Sam coins” category, which also includes Serum, a token created and promoted by FTX and Alameda. Solana has seen a huge surge recently, rising more than eightfold since the end of September.

Meanwhile, FTX’s Bitcoin supply, which was worth $560 million at the time of the September report when the coin was trading at around $25,000, also saw a significant increase. Since then, the value of Bitcoin has increased by around 180%.

For FTX customers, the recovery means they will receive the cash equivalent of what their crypto was worth in November 2022, according to a judge ruling. In other words: they see no benefit from FTX’s investments and do not receive any virtual coins that would allow them to cash out at higher valuations.

Braden Perry, who was once a senior trial attorney for the Commodity Futures Trading Commission, told CNBC that Bankman-Fried faces at least 70 months in prison — even if there is none — based on his basic offense, number of victims, sophisticated means and leadership role financial damage to the victims. The massive losses originally expected suggested a life expectancy of 30 years, Perry added.

Don’t miss these stories from CNBC PRO:

Sam Bankman-Fried will testify in a fraud trial that experts say is a big gamble in the case

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button