Judgment day for crypto’s golden boy

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With billions in losses for investors, failed crypto exchange FTX founder Sam Bankman-Fried was found guilty by a jury in New York on Thursday and the judge handed him a 25-year sentence in US federal prison.

The fraudster plans to appeal his sentence maintaining his innocence. Many people believed that the scale of the fraud demanded a sentence as high as 50 years. Prosecutors called his crime one of the largest financial frauds in U.S. history.

In determining the sentence Judge Lewis Kaplan said that he weighted the brazenness of the defendant’s actions, his lack of remorse and the possibility he’d commit future crimes.

He also ordered him to repay $11 bln to customers and investors.

“There’s a risk that this man will be in a position to do something very bad in the future. And it’s not a trivial risk at all,” the judge said.

Federal prosecutors pointed out that the defendant used other people’s money to fund his lavish lifestyle, make risky investments and pursue his political agenda.

Bankman-Fried’s meteoric rise to fame and fortune with his crypto currency exchange and his subsequent fallout underscores the importance of regulation in the U.S. and the E.U.

Cryptos can be used in illegal transactions such as arms purchases, drug trafficking and virtually every major crime in the world.

As an asset class, it now stands well above two trillion U.S. dollars and few investors can ignore it. Warren Buffet of Berkshire Hathaway is one of them.

U.S. SEC complaint

In December 2022 the U.S. Securities and Exchange Commission charged Samuel Bankman-Fried “with orchestrating a scheme to defraud equity investors” in FTX Trading Ltd. (FTX), the crypto trading platform of which he was the CEO and co-founder.

Investigations as to other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing.

According to the SEC’s complaint, since at least May 2019, FTX, based in the Bahamas, raised more than $1.8 billion from equity investors, including approximately $1.1 billion from 90 U.S.-based investors.

In his representations to investors, Bankman-Fried promoted FTX as a safe, responsible crypto asset trading platform, specifically touting FTX’s sophisticated, automated risk measures to protect customer assets.

The complaint alleges that, in reality, Bankman-Fried orchestrated a years-long fraud to conceal from FTX’s investors: (1) the undisclosed diversion of FTX customers’ funds to Alameda Research LLC, his privately-held crypto hedge fund; (2) the undisclosed special treatment afforded to Alameda on the FTX platform, including providing Alameda with a virtually unlimited “line of credit” funded by the platform’s customers and exempting Alameda from certain key FTX risk mitigation measures; and (3) undisclosed risk stemming from FTX’s exposure to Alameda’s significant holdings of overvalued, illiquid assets such as FTX-affiliated tokens.

The complaint further alleges that Bankman-Fried used commingled FTX customers’ funds at Alameda to make undisclosed venture investments, lavish real estate purchases, and large political donations.”