Sam Bankman-Fried, founder and CEO of the collapsed cryptocurrency exchange FTX, late last week was convicted of all seven counts of fraud, money laundering and conspiracy to commit these crimes. Was he a criminal from the start, or did he get in over his head?
The prosecution painted a picture of a criminal who set out to defraud people.
"He told a story, and he lied to you," prosecutor Nicolas Roos told jurors during closing arguments. "To believe the defendant's story you'd have to ignore all the evidence."
Bankman-Fried's attorney, Mark Cohen, said his client made mistakes, but not with criminal intent.
"Sam did his best to start and operate two multibillion-dollar businesses in a new market," said Cohen. "Some decisions turned out well. Some decisions turned out poorly."
One banker, who spoke with me off the record last week, said Bankman-Fried is definitely a villain. The banker said he had seen evidence in the summer of 2022 of probable crimes committed by FTX executives and arranged to get that evidence to the FBI — including evidence of probable racketeering and Office of Foreign Assets Control violations.
"SBF was crypto's Bugsy Siegel," the banker said, referring to the 1930s gangster. "He engaged in more than one Vegas-style shakedown of [organizations] that wanted to have their coins listed on his exchange. It's no accident that some of the people most publicly celebrating his conviction are the good actors of crypto who knew he was a scammer. Good riddance — I only wish it had happened sooner so fewer people would have been hurt."
'There was a lot of naivete'
"What he did was criminal," said Sam Taylor, head of corporate intelligence, Americas at the consulting firm S-RM. "He was convicted."
But it may not have been a yearslong fraud along the lines of Bernard Madoff's Ponzi scheme, Taylor said.
The fraud is complicated, but it centers on one thing: the movement of $8 billion to $10 billion from FTX to Alameda Research.
According to the government, billions of dollars FTX customers had deposited in what they thought were safe accounts at FTX were actually put in bank accounts controlled by Alameda, the hedge fund founded and 90%-owned by Bankman-Fried. Some of these bank accounts were not in Alameda's name, but rather in the name of North Dimension, an Alameda subsidiary. Alameda did not segregate these customer funds, but instead commingled them with its other assets, and used them to fund its trading operations and Bankman-Fried's other ventures, according to the Securities and Exchange Commission's complaint against Bankman-Fried.
"That is improper use of investor funds and something that is illegal," Taylor said. "But it's not a Ponzi scheme where you're constantly getting new money and swindling new investors."
"It does appear there was a lot of naivete and that there was not an adult in the room," Taylor said. "And I think that's the biggest takeaway, the way that this company was built out. There was just no one in charge. And there was just so much money moving around that no one was asking the questions they ought to have been."
People who commit crimes are complicated, noted Renato Mariotti, a former prosecutor in the Justice Department's securities and commodities fraud section who is now a trial partner in Chicago with Bryan Cave Leighton Paisner. "Their motives are complicated. It's rare that they are the caricature that is often portrayed in a TV show or a movie."
Mariotti quoted a line from a book written by Aleksandr Solzhenitsyn, "Gulag Archipelago": "If only there were evil people somewhere insidiously committing evil deeds, and it were necessary only to separate them from the rest of us and destroy them. But the line dividing good and evil cuts through the heart of every human being. And who is willing to destroy a piece of his own heart?"
'Closer to being a villain'
Sam Bankman-Fried did not imagine himself to be an archcriminal or a villain, Mariotti pointed out.
"He imagined himself as the hero and viewed himself as someone who was a visionary and a genius of some kind," Mariotti said. "The reality is that he's closer to being a villain than he is to being a visionary or a genius. Sam Bankman-Fried was certainly in over his head, but to this day, he doesn't recognize that, and he has not come to grips with that. He believes that he is in the right and that the Justice Department and [Securities and Exchange Commission] and [Commodity Futures Trading Commission] and everyone else is in the wrong."
Bankman-Fried deserved to be convicted, said Mariotti, "because he misled a lot of ordinary people into placing some of their life savings into FTX under the false promise that their money would always be available for them to withdraw. And he tried to market this to people who are not sophisticated investors. So it's not surprising that the [Justice Department] took that seriously."
FTX's implosion made it even harder for crypto-related businesses to work with U.S. banks. With the fraud conviction of the company's founder, regulatory clarity may gradually come.
In the eyes of the justice system, no one can lose billions of dollars of customer money and walk away free of consequences.
"It's a lot of money," Mariotti said. "There are people out there that watched the TV ad and put $50,000 of their hard-earned money into FTX. I don't think those people ever thought that the money that they put in would be used for some other purpose that was a piggy bank for the founder."
"In his own mind, he thinks that he's some sort of genius," Mariotti said. "But ultimately at its core, whether you're selling baseball cards or hot dogs or crypto, if you lie to people when you're taking their money, that's a crime."
