Sam Bankman-Fried, the ex-chief of the bankrupt crypto exchange FTX, was sentenced to 25 years in prison last week for fraud and conspiracy to commit money laundering, among other charges. And no, he won’t be out in 10 years. Apparently, in this particular corner of the US federal justice system, the maximum possible reduction of a prison term is 15% — if you are a good boy. SBF also has to forfeit $11-billion of his assets, which is a pretty impressive number. I could not find a precedent that comes close.

There is much to say about this, but let’s start with the social media peanut gallery (for which I have the greatest respect; among them are some very smart peanuts). The reactions range from “It’s a disgrace, he should have gotten more” to “Good, serves him right” to “Wait a minute, a rapist just got 10 years that same week and no FTX depositors lost their money, what’s going on here?”

It seems to depend on your point of view, as well as your understanding of the arcane subject of sentencing guidelines. It is true that FTX depositors are, in large part, being paid back (bankruptcy lawyers had some luck, as in the sale of FTX’s stake in the now stratospherically valued AI company Anthropic).

However, not included are those who sold at a loss when the bad news started to seep out, or those who committed suicide and shattered lives around them, or those in other crypto neighbourhoods who saw their holdings plummet as the world lost faith in the entire damn sector. The fact that the lawyers managed to get the funds back does not mitigate the crime in any way.

(For those who don’t follow crypto too closely, the world’s confidence has since recovered and crypto is now surfing a giant, gleeful, record-breaking wave.)

Hubris

It is also true that, unlike Ponzi king Bernie Madoff, who determinedly and wittingly defrauded thousands of investors, received a 50-year sentence and then died in jail, Bankman-Fried probably did not start FTX so he could steal. His crime was directly tied to the hubris which comes with making easy money when, as the market soared in the early 2020s, he luxuriously neglected risk management, regulations, conflicts of interest, governance and the irritating responsibilities of running a company, giving nary a thought to keeping decent records or abiding by required statutory whatnot.

Take the single matter of risk management, for instance. How this works is people sit around a table and say: “What could go wrong? And how do we protect ourselves if it does? Like plummeting crypto prices, for instance.” Duh, it’s such an obvious question, but no one at FTX seems to have asked it out loud, least of all Bankman-Fried.

Cryptocurrency prices, which had defied gravity for years, did indeed crash, bringing down FTX and related companies, and vaporising billions of dollars invested by customers of FTX (the sophisticated as well as the naïve), many of whom had bought into SBF’s personality cult — the image of a young, brilliant, awkward and badly dressed sage of a new financial world. The crypto market was not supposed to crash, you see. If it hadn’t, all would be well, SBF once remarked. He would still be a precocious young Du Pont hanging out with politicians and celebrities, his trusting investors all smiling.

As they say, everyone is a genius in a bull market.

The sentence

But still, 25 years and $11-billion? Fair? Let’s look at this from a slightly different perspective. The first is “whataboutery”, that feared dialectic technique of comparing one thing to another to argue for balance. 

Yes, worse fraudsters have escaped with far more gentle punishment and, in the largely invisible world of traditional finance, most are not caught at all — either because the criminal proceeds are too well hidden or by dint of sweetheart relationships with powerful people. Bankman-Fried was caught because blockchain transactions are open for all to see. It’s very hard to conceal crimes in this new world.

Alas, whataboutery shrivels under intellectual scrutiny. Another man’s crime does not absolve one’s own, no matter the consequences. Mitigation is not prompted by the good fortune of others.

There is another perspective, that of caveat emptor. If you want to gamble your money on a poorly regulated market, then the loss is on you. But this doesn’t hold up either — it was not the falling crypto market that was to blame. It was the fact that SBF illegally loaned depositors’ money to related companies (in which he had an interest) and those companies could not service their debt when prices collapsed, leaving a trail of bankruptcies in their wake.

Another perspective derives from SBF’s charitable or so-called altruistic actions (of which there were many), which his defence presented to the court in mitigation. Nah, not buying that either. The road is littered with successful fraudsters who have sought redemption in the funding of good works and noble causes.

Justice

So where does this leave us? How should we think about this very public act of justice?

One of the shocking realisations over the past decade of crypto, at least for me, has been the ease with which some participants steal, often with no apparent shame. Many would (presumably) never dream of boosting a sweet from a retail store, but do not blink at draining someone’s crypto wallet after illegally gaining access. As though crypto is a video game, with all consequences and suffering far removed from real life. 

So I am satisfied with SBF’s shame and his sentence, insofar as it may give the next fraudster pause. Lady Justice has made Sam Bankman-Fried an example for all to see. That alone justifies 25 years in a medium security lockup. DM

Steven Boykey Sidley is a professor of practice at JBS, University of Johannesburg. His new book, It’s Mine: How the Crypto Industry is Redefining Ownership, is published by Maverick451 in SA and Legend Times Group in the UK/EU, available now.