What to Expect from Sam Bankman-Fried’s Sentencing – and the Lessons We Should Learn

Thursday, March 28 will mark the effective end of one of the strangest stories of the 21st century: the systematic theft of $8 billion dollars by the son of two Stanford legal scholars, under the cover of techno-optimism and elite charity, but with the real goal of amassing power as quickly as possible.

That is the basic story of Sam Bankman-Fried, who on March 28 will be sentenced for the seven fraud-related convictions handed down by a jury of his peers last November. His sentencing will also be based on the untried but well-supported claims that he used stolen customer funds to bribe Chinese officials and to fund a web of campaign finance fraud that for a time made Bankman-Fried a notable U.S. political force.

That story was told in perhaps its most condensed and compelling form yet in the sentencing recommendation submitted to Judge Lewis Kaplan by federal prosecutors on March 15. Based on their meticulous establishment of Bankman-Fried’s repeated and knowing deceptions, and supported by a heart-wrenching series of victim’s statements, prosecutors have recommended Bankman-Fried be sentenced to 40-50 years in prison. That’s a lot – but still far less than the possible sentence of more than 100 years.

Doing Investors a “Favor”

The plea for clemency from Bankman-Fried’s defense team argued for a sentence of just 6 years. That ask leaned heavily on two arguments that proved ineffective at trial: that Bankman-Fried never really stole any money, and that he donated a lot to charity. The first argument is largely based on the misleading idea that the FTX bankruptcy estate has “repaid depositors in full,” a truly deceptive conceit that FTX recovery CEO John Ray III has already vociferously rebutted in a brief of his own.

In fact, the idea that FTX deposits would eventually be repaid is an echo of Bankman-Fried’s criminal motives. Though he and allies like Michael Lewis have attempted to depict him as merely hapless, it has become clear since his arrest in December of 2022 that Sam Bankman-Fried believed he could gamble with other people’s money, and win. As Caroline Ellison testified, Bankman-Fried regarded FTX customer funds as “a good source of capital” to fuel the exchange’s growth, even if he had repeatedly, publicly claimed deposits were sacrosanct.

Bankman-Fried thought, in fact, that he was doing his depositors and investors a favor, pushing for the maximum “expected value” of FTX as quickly as possible – after which he could pay back all the deposits. He wasn’t stealing, in his own mind, merely borrowing. Even after his conviction was handed down, allies like Stanford’s Jon Donohue and Yale’s Ian Ayres have made essentially the same argument. And here it is yet again from his defense team.

Judge Kaplan has already shown his utter contempt for such ethical hogswaddle. “This is like saying that if I break into the Federal Reserve Bank, make off with a million bucks, spend it all on Powerball tickets and happen to win, it was okay,” Kaplan quipped at trial on October 11, 2023.

Similarly, one inconvenience of relying on Bankman-Fried’s charitable work as evidence of good character is that the donations themselves, as the trial established, largely came from stolen customer funds. And while the defense’s clemency package included an array of character witness statements in support of SBF, they were limited and sometimes bizarre, including numerous statements from people who only knew Bankman-Fried as a child, and one from an alleged pedophile who Bankman-Fried has seemingly befriended in jail.

I spent a month of days last year observing SBF’s criminal trial. Again and again, I saw Judge Lewis Kaplan react dismissively, and even angrily, to just such misleading and dishonest pleadings from Bankman-Fried’s defense team. He won’t go for them the second time around, either: I believe Judge Kaplan is very, very likely to follow the prosecution’s recommendations and sentence Bankman-Fried to roughly a half-century behind bars.

Given the way these things work, and barring the unlikely success of an appeal, that means Sam Bankman-Fried will be in prison until he’s well into his sixties.

Sam Bankman-Fried’s Downfall Won’t Cleanse Crypto of Sin

It has been said frequently that Bankman-Fried’s crimes had little to do with cryptocurrency as a technology, and that’s true. Bankman-Fried’s Wall Street background paralleled that of many other malefactors of the 2022 collapse, and he mostly saw crypto as an easy way to make money because of its volatility. His fraud relied on centralization and opacity to deceive customers – if anything an inversion of how on-chain finance works.

Be that as it may, he did choose to run his long con in the crypto industry, and his sentencing is a time for the industry to reflect, and maybe learn a thing or two.

Above all, it’s vital not to get lulled into a sense of complacency. Among the documents included in the prosecution’s sentencing package was a truly unhinged list, written by Bankman-Fried, of ways he could reframe his crimes after the FTX collapse. Among them is the proposed narrative that “SBF Died For Your Sins.”

Whatever Bankman-Fried thought he meant by this, it echoes a dangerously tempting narrative of redemption. with figures like SBF, Do Kwon, and Alex Mashinsky facing justice, it’s tempting to assume that all the bad guys have been caught, and that crypto from here on out is going to be safe and clean and good.

But I’ve been covering this world for more than a decade now, and I have bad news: even as crypto eats the planet, there will continue to be frauds, scams, and bad ideas. In fact, it feels like a timely cautionary tale that just days before SBF’s sentencing, we saw a devastating hack of the Blast ecosystem, itself one of the new, shiny toys that have emerged since the 2022 collapse that SBF helped cause. If this is crypto’s clean slate, we’re not off to a great start.

Though there’s no evidence of fraud, Blast’s troubles still echo SBF’s. That project’s premature launch and yield-focused marketing have shades of the same fundamental maximizing urge that led SBF to crime, then to poverty, and now prison. As greed once again overpowers the deeper focus on social and political reform that is the foundation of the cryptocurrency movement, we will see yet another round of fragility, risk, fraud, and blowups. Smart players will see promises of “native yield” or “doubled staking rewards” or “20% APR” and know them for what they are: huge, flashing warning signs.

Ignoring warnings and throwing caution to the wind was fundamental to Bankman-Fried’s downfall. He ignored repeated objections to his plundering by his lieutenants Caroline Ellison, Nishad Singh, and Gary Wang – all of whom now face sentences of their own. Certain he was smarter than everyone else, Bankman-Fried ignored the advice of lawyers, who he felt “don’t know what they’re talking about,” to conduct a full-court public relations tour after FTX’s collapse. Those interviews helped hamstring his defense team and guarantee his conviction.

Industry Lessons … and Life Lessons

The worldview that drove Bankman-Fried’s reckless plan was equally premised on massive ego. It boiled down to a belief in his own infallibility, and the insignificance of the moral standards that “normal” humans are bound by. Ellison testified at trial that Bankman-Fried didn’t believe that “rules like ‘don’t lie’ or ‘don’t steal’” applied under his chosen ethos. That ethos was a mix of his mother’s utilitarian consequentialism; the similarly utilitarian “earn to give” pitch of the effective altruism movement; and the endless “expected value” calculations he learned to make as a trader at Jane Street.

There are many lessons to be learned from all this, as we watch a man who could have done real good in the world instead locked up for effectively the rest of his life. But a few takeaways seem particularly clear.

First, caution and humility are no sin. Whether as a founder or trader, risk management is part of the path to sustainable success.

Second, ethics matter – not the ethics of what might happen in the future, but the ethics of how you’re treating people right now.

Finally, greed is dangerous. While it’s fine to enjoy it when crypto assets gain value, a focus on rising numbers over fundamentals is the quickest road to the poorhouse.

Or to someplace even worse.