FTX Founder Bankman-Fried Set to Defend Against Fraud and Conspiracy Allegations

FTX’s Sam Bankman-Fried is facing a litany of charges, including wire fraud and conspiracy. However, while the potential combined penalties could add up to 115 years, it’s improbable that he would serve that duration even if convicted.

The legal proceedings revolving around the rise and fall of FTX and its linked hedge fund, Alameda Research, are set to commence soon. The main contention for prosecutors will be establishing that Bankman-Fried deliberately deceived either customers or lenders or conspired to do so.

Prosecution bears the onus of demonstrating Bankman-Fried’s legal violations. On the other side, the defense merely needs to persuade the jury that the U.S. Department of Justice’s case against the FTX founder is insufficient.

The charges themselves are:

• Committing wire fraud on FTX customers

• Conspiring to commit wire fraud on FTX customers

• Committing wire fraud on Alameda Research lenders

• Conspiring to commit wire fraud on Alameda Research lenders

• Conspiring to commit securities fraud against FTX investors

• Conspiring to commit [commodities?] fraud against FTX customers

• Conspiring to commit money laundering to hide the proceeds of wire fraud on FTX customers

Bankman-Fried is facing various charges, including multiple counts of wire fraud against FTX customers and Alameda Research lenders and several conspiracy charges relating to fraud against FTX investors and money laundering.

Of all the charges, only the allegations of wire fraud against FTX clients and Alameda Research lenders directly implicate Bankman-Fried. The other five revolve around conspiracy, implying he plotted with others to commit crimes. For clarity on this, the DOJ has asked Judge Lewis Kaplan to specify that actual crime commission is not mandatory for conspiracy charges.

Lawyer Martin Auerbach mentioned that for conspiracy, it’s essential to demonstrate that at least two individuals had a plan to deceive others and took overt actions to realize it. Regarding wire fraud, actions like sending deceitful emails or using online tools for deception meet the necessary criteria. For direct charges, the DOJ must prove that Bankman-Fried committed the crime.

Jordan Estes from Kramer Levin emphasized that the charges are centered on the allegation that Bankman-Fried misled stakeholders. The defense will likely argue, leveraging an advice-of-counsel defense, that the FTX founder consulted lawyers who approved his actions.

If the defense can establish a lack of fraudulent intent, Bankman-Fried might be acquitted. They might also challenge the DOJ’s witnesses’ credibility, suggesting they might be biased due to their potential legal perils.

The DOJ’s sentencing framework indicates a maximum of 20 years for each wire fraud and conspiracy charge and five years for commodities, securities, and campaign finance conspiracy. Although totals reach 115 years, sentences for similar charges tend to be concurrent.

Martin Auerbach stated that judges typically distill multi-count convictions down to the core crime. Given no mandatory minimum, sentences can still be significant depending on the severity and the financial implications of the crime.

Several legal experts approximate that if found guilty, Bankman-Fried might serve between 10 to 20 years, though Judge Kaplan will have the final say.

Jordan Estes noted, “Despite the complexities of modern assets and novel financial mechanisms, the essence of a fraud case remains consistent. It often boils down to whether deceit occurred and if the perpetrator recognized its wrongdoing.”