A year ago, the crypto-exchange FTX collapsed. It took with it a lot of money, value, cryptocurrency, and trust in the industry. Since then, governments around the world have been investigating and prosecuting the executive leadership of the company over various versions of fraud. This week, former CEO Sam Bankman-Fried was convicted on all 7 counts in the US and now faces over a century behind bars.
The collapse of FTX, a Bahamas-based cryptocurrency exchange, began in November 2022. The downfall was triggered by a liquidity crisis that exposed an $8 billion hole in FTX's accounts. Prior to its collapse, FTX was the third-largest cryptocurrency exchange by volume and had over one million users. On November 2, 2022, CoinDesk published an article stating that Alameda Research, a trading firm affiliated with FTX and owned by FTX chief executive Sam Bankman-Fried, held a significant amount of FTX's exchange token, FTT.
This revelation triggered a spike in withdrawals from FTX, but eventually, customers became unable to retrieve the money they had deposited in the exchange. On November 11, FTX, Alameda Research, and over 100 affiliated entities filed for bankruptcy. Bankman-Fried resigned as FTX CEO and was replaced by John J. Ray III.
The collapse of FTX has had a wide impact on cryptocurrency markets, with comparisons made to the Enron scandal and Madoff investment scandal, and was described by federal prosecutors as "one of the biggest financial frauds in American history". Following the bankruptcy, the Securities Commission of the Bahamas froze the assets of one of FTX's subsidiaries.
Sam Bankman-Fried's conviction
On November 2, 2023, exactly a year after the fraud was discovered, Sam Bankman-Fried was convicted of 7 charges of defrauding customers of FTX and lenders of Alameda Research. The charges were:
- Wire Fraud on Customers of FTX
- Conspiracy to Commit Wire Fraud on Customers of FTX
- Wire Fraud on Lenders to Alameda Research
- Conspiracy to Commit Wire Fraud on Lenders to Alameda Research
- Conspiracy to Commit Securities Fraud on Investors in FTX
- Conspiracy to Commit Commodities Fraud on Customers of FTX in Connection with Purchases and Sales of Cryptocurrency and Swaps
- Conspiracy to Commit Money Laundering
The evidence was fairly damning from the beginning, combined with SBF's own testimony that seemed to be a mix of lies and confusion. During his cross examination, he said that he couldn't remember over 100 times.
A jury of 12 came to this unanimous decision after weeks of trial and several hours of deliberation. Together, these charges carry over a century of time behind bars. US District Judge Lewis Kaplan, who has overseen the entire trial, will determine the final sentence. At the beginning of the trial Kaplan mentioned that, if convicted, Bankman-Fried was facing a long time in prison. In fact, he is facing 20 years for each case of money laundering (5 of the counts) and 5 years for each of the securities and commodities charges (2 of the counts). This means that if Kaplan gives the maximum sentence for each count, SBF would see 110 years in prison, certainly more than a life sentence.