May 21, 2024 10:21 pm

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Sam Bankman-Fried sentenced 25 years in multi-billion-dollar fraud scheme

NEW YORK—Samuel Bankman-Fried, also known as SBF, 32, of Stanford, California, was sentenced today, March 28, to 25 years in prison, three years of supervised release, and ordered to pay $11 billion in forfeiture for his orchestration of multiple fraudulent schemes. Bankman-Fried faced up to 110 years but the DOJ requested a sentence between 40 and 50 years.

Bankman-Fried
Sam Bankman-Fried, the founder of the collapsed crypto exchange FTX, speaks via a video feed from the Bahamas during at The New York Times’ DealBook Summit 2022 on Wednesday, November 30, 2022, in New York.

Bankman-Fried, founder of the cryptocurrency exchange FTX and the cryptocurrency trading firm Alameda Research, misappropriated billions of dollars of customer funds deposited with FTX, defrauded investors in FTX of more than $1.7 billion, and defrauded lenders to Alameda of more than $1.3 billion.

Once valued at over $30 billion as one of the largest cryptocurrency exchanges globally, FTX collapsed virtually overnight and filed for Chapter 11 bankruptcy protection in the US in 2022. This left a million customers, creditors, and investors facing losses in the billions of dollars after the crypto exchange imploded during a massive rush of users withdrawing from FTX

FTX did not have the liquid assets to pay out all of these withdrawals, causing them to freeze attempts to do so. 

Bankman-Fried attempted to ease client fears in a now-deleted Tweet:

“A competitor is trying to go after us with false rumors,” Bankman-Fried tweeted. “FTX is fine. Assets are fine.”

The competitor Bankman-Fried referred to is Binance: the largest crypto exchange in the world. Crypto exchanges — which work similarly to traditional stock trading platforms — allow users to buy and sell cryptocurrencies like Bitcoin or Ether. 

After a Coindesk article brought attention to FTX’s financials, Binance CEO Changpeng Zhao tweeted that Binance would “liquidate any remaining FTT.” FTX Token, referred to as FTT, is a cryptocurrency created by Bankman-Fried and his fellow FTX co-founders. Once valued as high as $80 per token, FTT had dropped to around $23 at the time of Zhao’s tweet. Binance’s move to sell off hundreds of millions of dollars worth of FTT tanked the value and escalated to the $6 billion in withdrawals previously mentioned. 

During this bank run, Bankman-Fried attempted to gain additional emergency funding from investors, even from his competitor, Binance. These attempts fell through, resulting in Bankman-Fried resigning as CEO and FTX filing for bankruptcy. 

The Coindesk article brought to light the “unusually close” relationship between FTX and Bankman-Fried’s trading company, Alameda Research. Of Alameda’s $14.6 billion in assets, $3.66 billion was in FTT — so roughly a quarter of Alameda’s assets were tied up in their own tanking cryptocurrency. 

Not only that, but it was revealed that Bankman-Fried had secretly transferred $10 billion in customer deposits into FTX over to Alameda and that at least $1 billion of those funds were missing

Bankruptcy filings exposed $4.1 billion in loans from Alameda to FTX executives. Bankman-Fried accounted for $3.3 billion of these loans: $1 billion being a personal loan, with another $2.3 billion going to Paper Bird Inc. — also owned by Bankman-Fried. FTX Director of Engineering, Nishad Singh, received a loan of $543 million and co-CEO of FTX’s Digital Markets subsidiary, Ryan Salame, received $55 million.

The remainder of the loan money is suspected to have gone into “political donations and personal investments.” According to Forbes:

Bankman-Fried contributed $40 million to Democrats during the 2022 midterms. This made him the second largest disclosed donor to Democratic causes. Conversely, Salame contributed $23.9 million to mostly Republicans. Singh spent $7.4 million on “mostly left-leaning super PACs.”

Bankman-Fried was previously found guilty on two counts of wire fraud, two counts of conspiracy to commit wire fraud, one count of conspiracy to commit securities fraud, one count of conspiracy to commit commodities fraud, and one count of conspiracy to commit money laundering, following a one-month trial before U.S. District Judge Lewis A. Kaplan for the Southern District of New York, who imposed the 25-year sentence on March 28, 2024.

“There are serious consequences for defrauding customers and investors,” said Attorney General Merrick B. Garland, “Anyone who believes they can hide their financial crimes behind wealth and power, or behind a shiny new thing they claim no one else is smart enough to understand, should think twice. I am grateful to the U.S. Attorney’s Office for the Southern District of New York and the FBI for their outstanding work in bringing Mr. Bankman-Fried to justice.”

“Samuel Bankman-Fried orchestrated one of the largest financial frauds in history, stealing over $8 billion of his customers’ money,” said U.S. Attorney Damian Williams for the Southern District of New York. “His deliberate and ongoing lies demonstrated a brazen disregard for customers’ expectations and disrespect for the rule of law, all so that he could secretly use his customers’ money to expand his own power and influence. The scale of his crimes is measured not just by the amount of money that was stolen, but by the extraordinary harm caused to victims, who in some cases had their life savings wiped out overnight. As a result of his unprecedented fraud, Bankman-Fried faces 25 years in prison and forfeiture of over $11 billion dollars. Today’s sentence will prevent the defendant from ever again committing fraud and is an important message to others who might be tempted to engage in financial crimes that justice will be swift, and the consequences will be severe.”

According to the DOJ, the allegations contained in the indictment, the evidence offered at trial, and matters included in public filings:

From 2019 to 2022, Bankman-Fried was the leader and mastermind of a scheme to defraud customers of FTX by misappropriating billions of dollars of those customers’ funds. Bankman-Fried took FTX customer funds for his personal use, to make investments and millions of dollars of political contributions to candidates from both parties, and to repay billions of dollars in loans owed by Alameda Research, a cryptocurrency trading fund that Bankman-Fried also founded. Bankman-Fried also defrauded lenders to Alameda and equity investors in FTX by providing them false and misleading financial information that concealed his misuse of customer deposits.

Samuel Bankman-Fried repeatedly told his customers, his investors, and the public that customer deposits into FTX were kept safe and were held in custody for the customers, that customer deposits were kept separate from company assets, and that customer deposits would not be used by FTX. He also repeatedly claimed that his trading company, Alameda, did not have any privileged access to FTX and did not receive special treatment from FTX. Those statements were false, and Bankman-Fried in fact channeled billions of dollars in customer deposits from FTX to Alameda, and then used those funds to make investments for his own benefit, to make political contributions, and to spend on real estate, among other expenditures. He employed a variety of fraudulent means to perpetrate this fraud. For instance, Bankman-Fried directed co-conspirators to alter FTX’s computer code to allow Alameda to withdraw effectively unlimited amounts of cryptocurrency from the exchange. Bankman-Fried also made false statements to financial institutions to conceal his misuse of customer dollar deposits. And he directed the creation of false financial statements for Alameda’s lenders, inflated FTX’s revenues and profits in numbers provided to investors, and backdated contracts and other documents to conceal his fraudulent conduct.

Judge Kaplan authorized the government to use the funds recovered through the forfeiture process to provide compensation to victims of Bankman-Fried’s crimes.

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