Sam Bankman-Fried is back in the US to face fraud charges in federal court. He will also wake up with the news that his two closest confidantes have pleaded guilty and are cooperating with prosecutors.
In December 2021, he was speaking before Congress on “Digital Assets and the Future of Finance.” The same House Financial Services committee recently requested he testify about the multi-billion-dollar downfall of his cryptocurrency trading platform, FTX. But he never did that hearing. He was indicted.
His business career spans less than a decade with its pinnacle, at least seemingly, peaking earlier this year when he was among the elite billionaires of the world. Now he is indicted and on his way to the United States in what may be a fraud involving billions of dollars with losses to tens of thousands of investors.
Over the years, I have reflected and written on many white-collar crime prosecutions, including my own. Without excusing the behavior of those offenders who have faced prosecution, the life of a defendant is a lonely road with unimaginable pressures that could not have been foreseen at the moment of crossing the line of an illegal act.
In the days leading up to his arrest, like many defendants, Bankman-Fried’s circle of confidants had dwindled. Once an investigation starts, federal agents, usually Federal Bureau of Investigations (FBI) talk to those lower in the targeted organization, in this case FTX and its partner firm Alameda Research. Their focus is squarely on the biggest fish. Bankman-Fried is that big fish. Once the FBI came knocking, those close to the big fish shared information that they got a call or had heard from someone else that the FBI was asking questions. Then, as the frequency of those FBI visits increase and those questioned understand the consequences of being close to Bankman-Fried, the calls stop. Bankman-Fried texts and calls, which are usually returned quickly, fall silent and that silence explains a lot.
FTX employees and those communicating with Bankman-Fried were likely sharing texts with law enforcement. Others simply would not respond to Bankman-Fried for fear of being drawn into the case. As US Attorney Damian Williams stated in a press conference announcing Bankman-Fried’s indictment, “If you have not reached out to us to talk to us, I would encourage you to do so, and do so quickly.” That race to the courthouse to win a cooperation deal is well underway and there is no shortage of people in that race, as there are in most white-collar crimes.
There is an old adage in white-collar cases where those who testify get a lesser sentence for cooperating: “Call me snitch, call me a rat, but call me at home, ’cause that’s where I’m at.” Anyone who worked at FTX should have an attorney by now who is assessing whether they have information that could be used against Bankman-Fried and others. It is almost certain that there will be indictments against others as six of the eight charges against Bankman-Fried involve a conspiracy, and you cannot commit a conspiracy with yourself. Those others, including his former girlfriend, Caroline Ellison, who is now reported to be cooperating.
The speed at which Bankman-Fried’s downfall has occurred is unique for white-collar cases. Bernie Madoff told federal authorities on December 11, 2008, oddly close to the day of Bankman-Fried’s indictment, that he had committed a decades-long, billion dollar fraud for which he had no answers. Madoff, who was on the express train of cooperating against himself, was not taken into custody until three months later in March 2009 when he officially entered his guilty plea. Madoff received 150 years in federal prison and died there. Based on the charges, Bankman-Fried may never see freedom again.
He was a scheduled attendee at the New York Times’ DealBook Summit in December 2022 as a pioneer of crypto trading and humble success story who Bloomberg News described in April 2022 as the “billionaire who wants to give away his fortune.” He most certainly knew prior to his arrest, even as he was speaking at the DealBook Summit, that he would be arrested if he stepped foot in the US His remote interview in the Bahamas was a failed attempt to convince law enforcement that he had nothing to hide. Even Bankman-Fried’s answer to how Alameda got money from FTX that he “didn’t knowingly commingle funds” was a statement that was a gift to prosecutors and it will be a line we will see repeated as charges grow.
The press was in love with Bankman-Fried just months ago, but has now turned on him and his family. Bankman-Fried was smart enough to know that if he were indicted that there would be negative articles on him and his company. However, he likely did not foresee his parents, Stanford University professors, and a former girlfriend being profiled by tabloids. As time goes on, those who knew Bankman-Fried in high school and college will be spilling stories on and those stories, true or false, will be unchallenged by Bankman-Fried as he will likely remain silent.
Bankman-Fried’s extradition from the Bahamas has been confusing but he has now returned to the United States to face charges. Some may think that his about-face is due to the prison conditions in the Bahamas but the ones awaiting him at MDC Brooklyn, a notoriously awful prison, are no better. Like other defendants who have been at MDC Brooklyn preparing for trial, like Ghislaine Maxwell, he will spend most days outside of a cell in a small conference room with his lawyers before being returned to the high security wing of the prison. If convicted or he pleads, his sentence will likely be so long that he will be housed in a US Penitentiary, the highest security level in the BOP.
The road will also get rougher for Bankman-Fried as there will likely be a superseding indictment because the investigation is just now gaining speed. The initial indictment was rather broad but expect more specifics as the investigation continues. These complex cases can take years to resolve and those years will be the slowest for Bankman-Fried.