The SBF team argues for a 5-6 year sentence, citing money from FTX clients

While prosecutors ask that FTX founder Sam Bankman-Fried spend 40 to 50 years in prison for his crimes, the defense team urges the judge to consider a sentence about 90% shorter.

Bankman-Fried’s fate will be announced Thursday morning in Manhattan by Judge Lewis Kaplan, who presided over the month-long trial in November. Bankman-Fried was found guilty of seven charges related to the collapse of cryptocurrency exchange FTX and the disappearance of approximately $10 billion in customer deposits.

The Bankman-Fried team’s hope 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.

Lawyers representing the FTX bankruptcy estate told a Delaware judge last month that they expect to fully repay clients and creditors with legitimate claims. Bankruptcy lawyer Andrew Dietderich, who is working with FTX’s new management team, said that “there is still a great deal of work and risk” to be done to return all the money to clients, but that the team has a “strategy to achieve this.”

This was a potentially dramatic shift in the narrative surrounding FTX’s collapse 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 were said to be irrecoverable due to the poorly regulated and unsecured nature of the cryptocurrency industry. Those clients were faced with the very real possibility that the vast majority of their money had evaporated, just as in other cases of hedge funds and lenders going bankrupt during the so-called crypto winter of 2022.

Much of the success of the government’s case against Bankman-Fried hinged on the jury’s belief that the defendant had stolen billions of dollars of FTX customers’ money to make risky bets in Alameda.

For months, as FTX made its way through a Delaware bankruptcy court, new CEO John Ray III and his team of restructuring advisors recovered cash, luxury properties and cryptocurrencies, as well as tracked down missing assets. They’ve already raised more than $7 billion, and that doesn’t include such valuable items as $26 million in gifts and estates to Bankman-Fried’s parents, or the $700 million delivered to K5 Global and founder Michael Kives, who have invested FTX cash in companies like SpaceX that have since increased in value.

Bankman-Fried’s defense asked the court for a sentence of between 63 and 78 months. Beyond the fact that he is a “nonviolent first-time offender,” the FTX founder’s lawyers are largely leaning on the argument that Bankman-Fried’s risky gambles have paid off and the bankruptcy estate will expect to repay FTX customers in full.

It’s a story Bankman-Fried was trying to sell while he awaited trial.

“FTX US remains completely solvent,” Bankman-Fried wrote in a Substack post on January 12, 2023, while under house arrest at her parents’ home in Palo Alto, California. She said the exchange “should be able to return all customer funds.”

A key asset in FTX’s portfolio is its stake in artificial intelligence startup Anthropic. Late last week, FTX’s bankruptcy estate reached a deal with a consortium of buyers to sell most of its stakes in Anthropic 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 around $1.4 billion.

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

Renato Mariotti, a former prosecutor in the U.S. Department of Justice’s Securities and Commodities Fraud Section, told CNBC that the more money the estate is able to recover for clients, the better for Bankman-Fried.

“If that is true, that is relevant and the judge is required to consider the victim’s restitution at 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 last “at least 20-25 years.”

In addition to anthropogenic gains, FTX clients can look to the rebound in cryptocurrencies as a sign of optimism. Bitcoin it is trading at nearly $70,000, compared to less than $17,000 at the time of FTX’s collapse.

In September, the bankruptcy team released a status report showing that FTX had $3.4 billion worth of digital assets, of which more than $1.1 billion came from its cryptocurrency investment Solana. In the defense’s letter to the court filed last month, the lawyers note a sizable increase in the value of FTX’s Solana stake, saying that as of Feb. 26, the property has seen an increase of about $4 billion over the past six months. thanks to the appreciation of the token. .

Solana falls into the category of the so-called “Sam coins”, a group that also includes Serum, a token created and promoted by FTX and Alameda. Solana has seen a huge surge of late, rising 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 a significant increase. Since then the value of Bitcoin has increased by approximately 180%.

For FTX customers, according to a judge’s ruling, being cured means getting the cash equivalent of the value of their cryptocurrency in November 2022. In other words, they do not see any benefits of FTX investments nor do they receive virtual coins that would allow them to cash in at higher valuations.

Braden Perry, who was once a senior attorney for the Commodity Futures Trading Commission, told CNBC that Bankman-Fried faces at least 70 months in prison due to her underlying crime, number of victims, sophisticated means and role of leadership, even if there is no monetary loss to the victims. The large losses originally predicted would suggest 30 years of life, Perry added.