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Deep fall:

FTX founder Sam Bankman Fried (here in front of the courthouse in Manhattan) has been found guilty of fraud

Photo: Amanda Perobelli / REUTERS

The verdict of the twelve jurors was unanimous. In November 2023, a year after the collapse of the crypto exchange FTX, they found its founder

Sam Bankman-Fried

guilty of, among other things, fraud and money laundering. They saw it as proven that the now 32-year-old had embezzled around $8 billion in customer money in order to speculate and finance his lavish lifestyle. The public prosecutor spoke of a “fraud of historic proportions”. This Thursday, New York District Judge

Lewis Kaplan

announced the sentence for Bankman-Fried: The minimum sentence is around 5 years, the prosecutors have demanded 50 years.

For the deeply fallen “Golden Boy” of the crypto scene and former multi-billionaire, it will be decided whether he will be released just a few years after one of the biggest financial scandals in the USA - or whether he may have to spend the rest of his life in prison. The fact that there is such a divergence between the demands of the defense and the prosecution also has to do with the recent price rally in the crypto sector.

The defenders base their demand for a mild penalty for SBF primarily on the fact that only minor financial damage was caused to the customers of the collapsed crypto exchange FTX. It is undisputed that there was an $8 billion hole in FTX's balance sheet because Bankman-Fried secretly siphoned off his customers' money and passed it on to his hedge fund Alameda. Alameda used it to plug its own financial holes, but also invested in start-ups and cryptocurrencies such as Bitcoin, Solana and Ether.

“The damage is close to zero”

The insolvency administrator and current CEO of FTX, John Ray, is now watching over the remaining crypto assets and assets: the more these increase in value in the course of the current price rally, the greater the chance of the insolvency administrator of satisfying the claims of the injured customers. There is a possibility that customers will receive “full” payment of their claims established at the time of the FTX collapse, the bankruptcy trustee’s office told the New York court in January.

A through pass for Bankman-Fried's defenders. “The damage to FTX customers, financiers and investors is close to zero,” they wrote to Judge Kaplan in February. The $8 billion hole in FTX’s balance sheet was merely a “temporary funding gap”: “Every victim will get 100 cents back on every dollar – plus interest.”

AI also helps to plug financial holes

According to calculations by the Financial Times, the recent crypto price rally and the boom in the artificial intelligence (AI) sector could even ensure that the assets at FTX exceed the value of the original claims. When the crypto exchange collapsed in November 2022, one Bitcoin was worth around $17,000 - today it is around $70,000. The cryptocurrency Solana – a token that Alameda and Bankman Fried particularly enjoyed speculating on – was trading for $15 at the time, but today it is around $180. And creditors could also benefit from the AI ​​boom: FTX, for example, invested $500 million in the AI ​​start-up Anthropic; the investment is currently valued at around $1.4 trillion. This week it was also announced that Amazon is investing billions more US dollars in the start-up. Ray has already monetized a portion of Anthropic.

Although Bankman-Fried irretrievably sunk billions of dollars via FTX and Alameda, some of the illegal investments have multiplied since then. However, the customers who were harmed at the time did not participate in the crypto price increases of the past few months.

“Massive fraud remains massive fraud”

The public prosecutor and insolvency administrator

John Ray

therefore vigorously reject the defense's argument that no financial damage was caused. The price recovery does not change the fact that Bankman-Fried committed “massive fraud,” prosecutors said. The fact that the victims will receive money back around two years after the FTX bankruptcy is no consolation for those who urgently needed the money at the end of 2022. And bankruptcy trustee Ray added in a letter to Judge Kaplan: Even if the claims established at that time were fully satisfied, the victims would still never be put in the same financial position they would be in today if the "colossal fraud" had not occurred would have.

For Bankman-Fried, the crypto price rally is nothing more than a glimmer of hope. It is unclear whether Judge Kaplan will even consider the increase in value of the remaining FTX assets. In his 30 years as a federal judge, he has dealt with numerous economic crimes - and also determined the sentence for the perpetrators in some particularly spectacular fraud cases (see photo series above). Whether Bankman-Fried will be spared a fate like

Bernard Madoff

or

Allen Stanford

will be decided on Thursday.

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