- Sam Bankman-Fried’s lawyers claimed that FTX customers had “zero” losses when the exchange collapsed.
- They argued in favor of a light sentence for the convicted crypto mogul on Thursday.
The federal judge who oversaw Sam Bankman-Fried’s criminal case sharply criticized his legal team during the disgraced cryptocurrency mogul’s sentencing hearing Thursday, saying he “rejected entirely” their claims about “zero” losses for FTX customers.
“The defendant’s assertion that FTX customers will be made whole is misleading, it is legally flawed, it is speculative,” US District Judge Lewis Kaplan said near the start of the hearing in Manhattan federal court, where he sentenced Bankman-Fried to 25 years in prison.
Bankman-Fried — who was found guilty of fraud, conspiracy, and money laundering by a jury in November — has long claimed that bankruptcy lawyers, not him, were to blame for customers being unable to get their money from FTX, his cryptocurrency exchange that collapsed in November 2022.
Federal prosecutors demonstrated that he used customer deposits to fuel personal spending and investments and prop up losses at Alameda Research, the cryptocurrency trading firm he also controlled.
In Bankman-Fried’s trial, other FTX and Alameda executives — who had pleaded guilty to charges in connection with the plot — walked jurors through spreadsheets, computer code, text messages, and internal documents that demonstrated how they used deposits from ordinary FTX customers for their own purposes, rather than protecting customers’ funds.
At the sentencing hearing, Kaplan said it didn’t matter if some of Bankman-Fried’s “speculative investments” paid off and if cryptocurrency prices have risen since FTX’s bankruptcy. He compared him to a thief who takes his loot to Las Vegas and gambles money that isn’t is.
The judge said he imposed such a large sentence in part because of “the brazenness of his actions, his exceptional flexibility with the truth,” and “his apparent lack of real remorse.”
Bankman-Fried has long said that, at the time of FTX’s collapse, he was pressured to sign control of FTX over to John J. Ray III, an experienced bankruptcy attorney who has made a career out of sorting through the ashes of high-profile corporate wrecks, including Enron and the subprime mortgage company Residential Capital. Had Bankman-Fried held onto the company — and if Ray had listened to his advice rather than spurn him — FTX customers could have gotten their money back quickly, he claimed.
He continued to make that claim in Thursday’s sentencing hearing. He spent much of his 20-minute speech to the judge criticizing how the bankruptcy process has been handled and insisting FTX “wasn’t bankrupt” and that its customers “could have been paid back” with interest, even with the value of rebounded cryptocurrency assets. Only a “liquidity crisis” prevented that from happening as quickly as customers needed in November 2022, he said.
“There are enough assets,” he said. “There were always enough assets to do it.”
The judge was always skeptical about Bankman-Fried’s narrative
In their sentencing memorandum, Bankman-Fried’s lawyers have claimed that “the most reasonable estimate of customer loss is zero” and that FTX was “solvent at the time of the bankruptcy petition” and just had a “liquidity shortfall” that delayed the release of customer funds.
“The money was there — not lost,” his lawyers wrote.
The lawyers also zeroed in on a quote from one of FTX’s debtors’ lawyers during a January bankruptcy hearing in Delaware, where he cautiously predicted that FTX’s customers and creditors “will eventually be paid in full.”
Even before Thursday’s sentencing, it was clear that Kaplan was skeptical. Ahead of the hearing, he asked for a copy of the full transcript from the bankruptcy court.
Ray — who is now steering FTX through the bankruptcy process — wrote a blistering seven-page letter to the judge saying that Bankman-Fried was living “a life of delusion,” and that he “ignores pages and pages of important commentary, qualifications, and caveats from that hearing.”
“Only by cutting off Mr. Bankman-Fried was the Chapter 11 team able to stop the bleeding,” he wrote. “Of this, I have no doubt.”
The process to repay FTX’s creditors is complicated by the way losses are being calculated in the bankruptcy case. In a recent proposal to be approved by the bankruptcy judge, credit would be determined by the value of each customer’s assets at the time that FTX filed for bankruptcy. So, for example, an FTX user who had one bitcoin on the exchange in November 2022 would be repaid about $17,000, its trading value at the time, even though the price of bitcoin has since risen to about $70,000.
Prosecutors have pegged FTX customer losses at $8 billion. They said the total amount of loss due to Bankman-Fried’s fraud amounted to $11 billion when accounting for investors and lenders for FTX and Alameda Research.
Nicolas Roos, one of the lead prosecutors in the case, urged Kaplan not to consider Bankman-Fried’s actions “bloodless,” pointing to over 200 letters from victims, many of whom described how they have been locked out of their life savings. He called FTX “a business that was pervaded with criminality throughout,” not just one that ran into back luck at the end.
The judge agreed with the $11 billion figure, noting that it far exceeded the $550 million figure in federal sentencing guidelines, which was the lower bound for the highest bracket of financial fraud.
Kaplan said that, in any case, Bankman-Fried couldn’t be credited for the bankruptcy debtors’ work to get FTX customers their money back.
He also said that Bankman-Fried perjured himself several times when he testified during his trial and claimed he wasn’t aware of the enormous shortfalls.
“I have been doing this job for 30 years. I have never seen a performance like that,” Kaplan said of Bankman-Fried’s testimony.