You might think this is a complicated case, based on conflicting pre-sentence reports submitted to the judge scheduled to sentence Sam Bankman Freed on seven counts of fraud on Thursday.
Ultimately, the submissions paint a very different picture of Bankman Freed. His lawyers argue that there are effectively no victims in the case, as no one suffered any losses from the collapse of the cryptocurrency exchange FTX.
They say if there's a victim here, it's Sam. Federal prosecutors painted him as a “depraved supervillain” to promote a “medieval view of punishment that amounts to recommending the death penalty.”
In prison, Sam was given little opportunity to do good in the world.
Sam Bankman Freed's mother, Barbara Freed, asks for him to be given a lenient sentence.
In fact, prosecutors have described Bankman-Fried as far from innocent. “He stole money from customers who entrusted him with money,” they wrote. “He lied to investors, sent fabricated documents to lenders, funneled millions of dollars in illegal contributions to our political system, and bribed foreign officials.”
Federal sentencing guidelines guarantee a maximum sentence of more than 100 years in prison.
Bankman Freed argues that a sentence of 5 1/2 to 6 1/2 years in prison would punish him for his bad behavior and reintegrate him into society to do more good deeds. The government says a sentence of 40 to 50 years is necessary to protect the public and deter him and others from committing similar crimes.
Federal Judge Louis A. Kaplan of New York was tasked with finding a way through these contradictory and contradictory situations.
A few things may have helped him find his way. One is that, as a judge of the first instance, he had already grasped the character of Bankman Freed from the scene. It happened in August, when Kaplan received evidence that Bankman Fried had engaged in witness tampering while awaiting trial (his attorney said his actions were within the scope of the First Amendment). ). He revoked Bankman-Freed's bail and sent him to await a pretrial period in jail.
Kaplan said more help came from John Ray III, who took over as CEO of FTX when it declared bankruptcy on Nov. 11, 2022, and more than 100 statements from fraud victims. Obtained.
More details later. First, a primer on Bankman-Fried and FTX.
Youthful, attractively hairy, and barely 30 years old, Bankman Fried was almost unique in a market known for plagiarism and knew how to do things right and right. He emerged as the leading expert in 2021 and 2022. He has assured Congressional committees, financial experts, and most importantly investors and customers that his FTX exchange is rigorously audited and operates in accordance with rules and practices that keep customers' funds absolutely safe. He said he is doing so.
read more: Column: Sam Bankman Freed's 7 guilty verdicts reveal cryptocurrencies are an out-and-out scam
None of that was true. FTX's internal accounting was so sloppy that executives and traders had no idea how much money they had or where it was located. The crypto tokens issued by the company were valued on a whim. Bankman Freed then raided customers' accounts to cover the losses of related companies.
He was able to do all this because the value of cryptocurrencies as an asset is highly ambiguous. The market itself is fraudulent. As I wrote last year, Bankman Freed has taken advantage of the emptiness of cryptocurrencies to paint something that sounds deep but is hollow at its core. If there was anything real about cryptocurrencies, he wouldn't have been able to do that. His arguments would have been weighed against market realities.
What is surprising about this incident is the number of people who were snowed in. Members of Congress took him at his word and happily accepted his campaign contributions. FTX has ended a deal to put its name and logo on the uniforms of Miami's professional basketball arena and Major League Baseball umpires, and will pay to appear in a flashy commercial starring Larry David during the 2022 Super Bowl. Ta.
Author Michael Lewis wrote a sleazy propaganda book about Bankman Freed, which is a fictional if not fictional version of the fictional world in which Bankman Freed was actually a successful entrepreneur. Showing rather than portraying.
Through it all, Bankman Fried portrayed himself as a humanitarian with global aspirations, infused with a philosophy of charitable giving known as “effective altruism.” The theme was that a small donation to a local charity was meaningless compared to the moral obligation to earn as much money as possible and give it away.
This sounds novel, but it was old wine in new bottles, washing away bad deeds with conspicuous displays of spiritual piety and good deeds.
On November 2, a federal jury convicted Bankman Freed of seven counts of fraud and conspiracy. After weeks of sometimes difficult testimony, it took just four hours to reach a verdict.
read more: Column: In Michael Lewis, Sam Bankman Freed found his last and most active victim.
So, back to the pre-sentence report. The main point of disagreement between Bankman Freed and the government is the magnitude of the losses suffered by FTX investors and customers. This is not surprising since it is the most important sentencing element in federal financial fraud cases. The government's estimated losses are more than $10 billion, many times higher than the guideline maximum.
Bankman Freed's lawyers say there are no losses. They report that a lawyer for FTX's debtors said at the bankruptcy hearing that “customers and creditors… are expected to receive full restitution.”
Bankman Freed's lawyers said FTX “was solvent at the time of the bankruptcy filing. The funds were there and were not lost. There was zero harm to customers, lenders, and investors.”
“Not so fast,” says Ray, an experienced government and corporate rescuer who became FTX's chief executive during its bankruptcy.
In his filing, Ray told the judge that all of these statements about FTX's solvency and absence of losses were “categorically, callously, and demonstrably false.” He argued that quoting from the bankruptcy hearing transcript “ignores pages of important commentary, qualifications, and caveats from the hearing that make the debtor's attorney's statements highly conditional.” “
“The victims of Mr. Bankman Freed… I never have They will return to the economic position they would be in today had it not been for his huge fraud,” Ray claimed. (Emphasis)
One reason for this is that victims' claims will be determined by converting the amount of virtual currency held by FTX into dollars as of the date of the bankruptcy filing. They cannot get their Bitcoin or other crypto tokens back. This is a blow because one Bitcoin (to give just one example) was worth $16,778 on the day of the bankruptcy and would be worth more than $70,000 today. Therefore, they will not be able to benefit from a 4x increase in the value of Bitcoin for the foreseeable future.
read more: Column: How Sam Bankman Freed used the “effective altruism” trend to get rich and fool the world
It is still unclear whether they will receive anything. Creditors have not been repaid, in part because Ray is still trying to locate all of FTX's assets and recover money paid to Bankman Freed associates, including his parents.
Lay was clearly angered by Bankman-Fried's attempts to blame the bankruptcy team for cannibalizing FTX's value and Bankman-Fried's claims that Lay's attempts to help restructure the company were rebuffed. are doing. In fact, Ray says it's only through the efforts of his own team that FTX has any residual value.
“Mr. Bankman Freed continues to live a life of delusion,” Ray told the judge. “The 'business' he left behind…was neither solvent nor secure. Huge sums of money were stolen by Mr. Bankman Freed.” “Investment in''.
What's more, Ray and prosecutors allege that Bankman Freed obstructed the government's investigation and rehabilitation efforts, rather than cooperating with the restructuring. Prosecutors have accused him of witness tampering and lying on the stand during the trial. Ray said he “actively worked to disrupt the preservation of the assets,” including moving portions of the FTX set to the Bahamas and attempting to gain access to FTX's internal systems.
“The Chapter 11 team was only able to stop the bleeding by amputating Mr. Bankman Freed,” Ray said.
read more: Column: Shame, suicide attempts, and “economic death” — the devastating cost of crypto company failures
If there were any doubts about the damage FTX's collapse caused to customers, the statements submitted by the victims to the court should dispel those doubts. As with the case of cryptocurrency exchange Celsior, which collapsed in 2022, FTX customer statements tell a story of devastating loss and emotional pain.
One customer said of the $4 million bill: “This was my life savings and now I have nothing left, no assets, no home, no savings, no job…My family's livelihood is irreparable. “It was severely damaged,” he wrote.
Another said, “Until this crime, I had invested years of hard work and dedication into building a better future for myself and my loved ones. I feel that my dreams have been shattered and my youth and vitality stolen from me.” …The burden of financial ruin weighed heavily on my shoulders, and I began to have constant thoughts of suicide. ”
This is not the only painting done for Judge Kaplan. Bankman-Fried's mother, Stanford law professor Barbara Freed, wrote in her letter to the judge, as if that were responsible for committing a multibillion-dollar fraud. , portrayed her son as a relentless idealist.
“Sam's desire to do good on a large scale never precluded concern for the individual,” she wrote. “Because of prison, Sam had little opportunity to do good in the world.”
I don't have much to say about this except that if I were facing sentencing on seven counts of fraud, I would hope my mother would write me a letter as well. (His father and brother also wrote letters pleading for leniency.)
Her family maintains that Bankman-Freed was a man of good character whose commitment to making the world a better place was misguided. Is this depiction reliable?
There are many signs that he felt empowered to command the world's attention. Testimony at his trial suggested that his image as an altruist was at least partially a sham. Ray listed a list of promotional options Bankman Freed considered after filing for bankruptcy. Among them: “Good luck, Tucker Carlsen.'' [sic], come out as a Republican…come out against the woke agenda…get interviewed by Michael Lewis on ABC, for example. ”
In other words, he was spinning. Cryptocurrency is the essence of spin in financial markets, and while Bankman Freed was on a roll, Bankman Freed was the embodiment of that spin. Judge Kaplan's decision on Thursday will demonstrate how adept he is at distinguishing truth from spin. At 79 years old, he has served as a federal judge for 30 years, and records show he is very good.
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This story originally appeared in the Los Angeles Times.
