Government evidence 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 is urging the judge to consider a sentence roughly 90 percent shorter.

Update: FTX Founder Sam Bankman-Fried Sentenced to 25 Years for Crypto Fraud to Pay $11 Billion in Forfeiture

Bankman-Fried’s fate will be announced in Manhattan on Thursday morning by Judge Louis 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 about $10 billion in client deposits that disappeared.

The hope for the Bankman-Fried team is that Kaplan takes 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.

Attorneys representing FTX’s bankruptcy estate told a Delaware judge last month that they expect to fully pay customers and creditors with legal claims. Bankruptcy attorney Andrew Dietderich, who is working with FTX’s new management team, said there is “still a lot of work and risk” in getting all the money back to customers, but that the team has a “strategy to get it done.”

It was a potentially dramatic shift in the narrative surrounding the collapse of FTX 16 months ago. At the time, many thousands of customers – reportedly as many as one million – were believed to have collectively lost billions of dollars that would have been irrecoverable 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 hinged on convincing jurors that the defendant stole billions of dollars worth of FTX customers’ money to make risky bets in Alameda.

For months, as FTX made its way through Delaware bankruptcy court, new CEO John Ray III and his team of restructuring advisers have been clawing back cash, luxury real estate and crypto, as well as tracking down missing assets. They’ve already raised more than $7 billion, and that doesn’t include assets like the $26 million in gifts and estates of Bankman-Fried’s parents or $700 million handed over to K5 Global and founder Michael Kiveswhich has invested FTX cash in companies like SpaceX, which have since grown in value.

Bankman-Fried’s defense team asked the court for a sentence in the range of 63 to 78 months. Aside from the fact that he is a “first-time nonviolent offender,” attorneys for the FTX founder are leaning heavily on the argument that Bankman-Fried’s risky bets have paid off and the bankruptcy estate expects to fully repay FTX’s customers.

It’s a story Bankman-Fried has been trying to sell while awaiting trial.

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

Sam Bankman-Fried faces up to 50 years in prison at the sentencing hearing

One 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 most of its Anthropic assets 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 put FTX’s roughly 8% stake at about $1.4 billion.

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

“I’m 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 recover for clients, the better for Bankman-Fried.

“If true, it is appropriate and the judge is required to consider restitution to the victim in sentencing,” Mariotti said. “But even if the victims were not harmed, he is still guilty of the crime.”

Mariotti said he expects the sentence to fall somewhere between what the prosecution and defense are asking for, predicting it will be “at least 20 to 25 years.”

Joseph Bankman and Barbara Fried arrive for the trial of their son, former FTX CEO Sam Bankman-Fried, who faces fraud charges in connection with the collapse of the failed cryptocurrency exchange, in Federal Court in New York, US, 26 October 2023.

Brendan McDermid | Reuters

In addition to Anthropic’s gains, FTX clients can look to the crypto recovery for signs of optimism. Bitcoin is trading at nearly $70,000, down from less than $17,000 during the FTX crash.

In September, the bankruptcy team publish a status report showing that FTX has $3.4 billion worth of digital assets, with over $1.1 billion coming from its crypto coin investments Solana. IN defense’s last filed letter with the court month, attorneys note a significant increase in the value of Solana’s share of FTX, saying that since February 26 the estate has seen an increase of approximately $4 billion over the past six months thanks to token appreciation.

Solana fits into the category of so-called “Sam Coins,” a group that also includes Serum, a token created and promoted by FTX and Alameda. Solana has seen a huge rally recently, climbing more than eight times since the end of September.

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

For FTX customers, being bailed out, according to a judge’s ruling, means receiving the cash equivalent of the value of their cryptocurrency in November 2022. In other words, they see no benefit from FTX’s investments or being given virtual coins that would allow them to cash in at higher valuations.

Braden Perry, who was once a senior trial attorney at the Commodity Futures Trading Commission, told CNBC that Bankman-Fried faces at least 70 months in prison based on his underlying crime, number of victims, sophisticated means and leadership role – even if there is no monetary loss to the victims. The massive losses originally expected would have assumed a 30-year life, Perry added.

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