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Sam Bankman-Fried facing criminal charges in court.

Will Sam Bankman-Fried Go To Jail?

February 8, 2023

Will Sam Bankman-Fried Go To Jail?

February 8, 2023

Blog » Posts tagged "SEC"

Sam Bankman-Fried Jail Saga: Will SBF Go to Jail?

The collapse of the FTX empire in November 2022 was shocking both in its speed and scale, and now, a Sam Bankman-Fried jail sentence may be looming. On the surface, it appeared to be a well-run cryptocurrency exchange that offered a range of attractive services and barely any downtime. 

However, as we now know, under the surface it was at best a disorganized mess and at worst, a criminal enterprise. 

Former CEO Sam Bankman-Fried is now famous across the world as the face of the collapse and has had multiple criminal charges leveled at him from various U.S. regulators and law enforcement agencies. The question is, however, is a SBF jail sentence inevitable, or, as with another famous face who presided over a crypto exchange collapse, could he escape?


The Ghost of MtGox

When MtGox collapsed in February 2014, many instinctively thought that CEO Mark Karpeles was behind the loss of 745,000 bitcoins from the exchange. 

When evidence emerged that someone had been using a trading bot to buy up hundreds of thousands of bitcoins in MtGox’s last days and that the accounts using those bots could only have been accessed by Karpeles, the writing was on the wall.

When MtGox collapsed in February 2014, many instinctively thought that CEO Mark Karpeles was behind the loss of 745,000 bitcoins from the exchange.

Karpeles was arrested in July 2015 and went on trial two years later for the use of trading bots. He was found guilty, but the judge believed Karpeles’ story that he was doing it to try and repair a hole in the company books and that he never stole the bitcoins. 

Karpeles’ claims were backed up by convincing evidence not available at the time of his arrest, and he escaped with a four-year suspended sentence, much to everyone’s surprise, beating Japan’s 99% conviction rate.

A similar situation appears to be happening with the Sam Bankman-Fried jail sentence, albeit on a much more serious level. 


Sam Bankman-Fried jail sentence and criminal charges

On December 12, 2022, Bankman-Fried was hit with eight charges by U.S. federal authorities:

  • Securities fraud (multiple cases).
  • Wire fraud (multiple cases).
  • Money laundering.
  • Conspiracy to avoid campaign finance regulations.
  • Conspiracy to commit wire fraud.
  • Conspiracy to commit securities fraud.

Sam Bankman-Fried jail time might be a possibility as he was recently arrested for multiple criminal charges.

He was also hit with multiple other charges by the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission, but these would only result in financial penalties rather than putting Sam Bankman-Fried in jail.


Bankman-Fried’s Alleged Criminal Behavior

Bankman-Fried’s charge sheet is 13 pages long, so we won’t go into much detail on the alleged offenses. But what we can say, is that it all makes for a heady cocktail of financial skulduggery that would make even a mafia godfather wince. 

In short, Bankman-Fried is said to have masterminded an operation designed entirely to enrich himself and his closest associates, chiefly by swapping funds at will between his various entities and giving his companies an unfair advantage over its customers, whose money he was taking as he exacted this advantage.

Even without the benefit of seeing the evidence, the odds seem stacked against Bankman-Fried from the outset. Each one of the eight charges against him might see SBF jail-birding with a prison sentence of multiple years. 

If he were to be found guilty on all accounts, he could, theoretically, be looking at hundreds of years in prison.

Sma Bankman-Fried jail image.

We don’t yet know what argument his counsel is going to put forward in his defense, but it is going to have to be spectacular to get him off all the charges.


A Plea Deal Won’t Save Him

What is more likely is that the litany of charges has been put against him in the hopes that he cooperates as part of a plea deal. This would see the lesser charges get dropped if he agrees to help in the ongoing cases against Caroline Ellison (Alameda Research CEO) and Gary Wang (FTX co-founder). 

The problem for Bankman-Fried is that he has already pleaded not guilty to all charges, whereas Ellison and Wang have taken the deals offered to them. This means that they are already opening up on everything they had to do with Bankman-Fried and FTX.

High-ranking individuals at FTX facing criminal charges.

Of course, we don’t know the full scale of the evidence that federal prosecutors will use to put Sam Bankman-Fried in jail – the collection of which is going on right now. However, we have some great insight from John Ray III, who commented on what he found at FTX in the days after he took over:

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. 

From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”

Ray also revealed that high-ranking individuals at FTX had taken steps to “conceal the misuse of customer funds” and also referenced the “secret exemption of Alameda from certain aspects of’s auto-liquidation protocol”, which meant that Alameda could not get liquidated if its trades went south when regular customers did. 

Small nuggets like this give us an insight into where the activity at FTX crossed the line from mismanagement to illicit activity.


Writing on the Wall for Bankman-Fried

Excerpts like those from Ray allow us to see this case in a different light to MtGox. Karpeles may have (and did) make some bad decisions during his tenure, and he was terrible at communication, but from what we know since its collapse, there was much more nefarious activity going on at FTX.

Of course, everyone should be presumed innocent until proven guilty, but the sheer weight and severity of the crimes leveled at Bankman-Fried mean that, even if he changes his plea to guilty, a Sam Bankman-Fried jail sentence may still be imminent and he will almost certainly face decades in prison. 

For example, just one count of conspiracy to commit wire fraud carries a maximum of 20 years in prison, and he is facing much more serious crimes than that.

The only way that SBF can avoid jail is by winning on every single charge or hoping the government’s case falls apart completely in the interim. While not impossible, the odds of either of these are remote, and it is much more likely that Sam Bankman-Fried’s jail sentence may see him spending the bulk of his adult life behind bars.

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Learn more about the XRP vs SEC lawsuit at Punt Casino.

What is the XRP SEC Lawsuit All About?

November 23, 2022

What is the XRP SEC Lawsuit All About?

November 23, 2022

Blog » Posts tagged "SEC"

The XRP SEC Lawsuit Continues to Rumble On

When the Securities and Exchange Commission (SEC) charged Ripple with an unregistered sale of securities in December 2020, the shock among the Ripple hierarchy and fan base was palpable. Despite many other crypto projects pulled by the SEC for similar “offenses”, the Ripple community was aghast that the sale of XRP tokens, which dated back to 2013, was only now being investigated.

The XRP case has been the most high-profile example yet in the long-running criticism of the SEC’s handling of crypto projects, where the utility of tokens is often ignored. The result? Utter confusion for the crypto projects trying to operate within the confines of the law. After two years, we finally have an expected XRP lawsuit outcome. While it benefits Ripple, the settlement won’t help the overall crypto community at all.


What is a security?

The lawsuit against Ripple was filed in December of 2020, but stems from 2 years’ worth of efforts by the SEC to bring crypto projects that it claims had sold their tokens in a manner that constitutes as a sale of securities. A ‘security’ is defined by Investopedia as being “a fungible, negotiable financial instrument that represents some type of financial value, usually in the form of a stock, bond, or option.”

The concept was crystalized in the Securities Act of 1933 and the Securities Exchange Act of 1934. Both of these Acts were formed in the wake of the Wall Street Crash of 1929 and the Great Depression that followed.

From then on, anyone wishing to sell a security was required to register as an authorized seller of securities with the SEC. Either that, or risk a fine and possibly the closure of their business.


The “Howey Test”

These new laws were first put to the test in a 1946 landmark case – SEC vs. Howey – the result of which has paved the way for thousands of rulings on securities ever since, even in the crypto sector. The W.J. Howey Company and the Howey-in-the-Hills Service owned large tracts of citrus-growing land in Lake County, Florida – half of which were offered to the public in an attempt to help the companies finance “additional development”.

According to the SEC, most of the purchasers of this land did not possess the “knowledge, skill, and equipment necessary for the care and cultivation of citrus trees” and so, should have been viewed as speculators, hoping to make a profit through the endeavors of others who would actually work the land. This, they argued, made the land a security. The defendants, on the other hand, argued that they were just selling land, and it was up to others to do with it as they pleased.

A cartoon depicting the lawsuit between The Howey Company vs. SEC in 1946.

The U.S. Supreme Court ruled that:

“[…] the transactions in this case clearly involve investment contracts, as so defined. The respondent companies are offering something more than fee simple interests in land […] they are offering an opportunity to contribute money and to share in the profits of a large citrus fruit enterprise.”


The Howey Test Criteria

This case resulted in the all-important “Howey Test” for Securities, which includes 4 criteria that must be met for a sale to be considered a security:

  • There is an investment of money
  • There is an expectation of profits
  • The investment of money is in a common enterprise
  • Any profit comes from the efforts of a promoter or third party

This test has been used by the SEC to claim that dozens of cryptocurrencies, especially those sold through ICOs, were sold as securities. This resulted in tens of millions of dollars in fines for those who either settled, or went to court and lost. To date, only one crypto project has beaten the SEC in court over a securities case.


And now… it’s Ripple’s turn

In December of 2020, it was Ripple’s turn to feel the SEC’s wrath. And the SEC, as before, pulled no punches when it came to its accusations:

“From at least 2013 through the present, Defendants sold over 14.6 billion units of a digital asset security called “XRP,” in return for cash or other consideration worth over $1.38 billion U.S. Dollars (“USD”) to fund Ripple’s operations and enrich Larsen and Garlinghouse. Defendants undertook this distribution without registering their offers and sales of XRP with the SEC as required by the federal securities laws, and no exemption from this requirement applied.”

Ripple (XRP) vs the SEC in court.

The SEC, as it always does on these occasions, sought “injunctive relief, disgorgement with prejudgment interest, and civil penalties.”

While these differ from case to case, Block.One, the creator of the EOS blockchain, settled with the SEC for $24 million after the agency labeled its $4.1 billion ICO an unregistered sale of securities.


Ripple defends

Ripple tried to get the XRP lawsuit dropped, using the same defense that many other crypto projects have put up (almost always unsuccessful). They argued that the XRP token has utility rather than just being an investment that buyers only bought because they thought it would increase in value through the work of Ripple Labs:

“XRP performs a number of functions that are distinct from the functions of “securities” as the  law has understood that term for decades. For example, XRP functions as a medium of exchange — a virtual currency used today in international and domestic transactions — moving value between jurisdictions and facilitating transactions. It is not a security and the SEC has no authority to regulate it as one.”

This argument, that cryptocurrencies are almost always designed as a utility token for the blockchain in question, is the core issue that has set the SEC at odds with crypto users and developers for years. The SEC says this is an excuse to attract investors. Developers, however, say that their tokens are crucial to the operation of the ecosystem.

Security Tokens vs Utility Tokens.

Developers also complain that the SEC is very quick to enforce its rules after a project has launched, but has never offered clear guidelines on how it wants blockchains to roll out tokens in a legal manner. This argument is certainly valid. There is currently no framework in place from the SEC to help developers navigate securities laws. They just get punished when their utility token is judged to be a security.


SEC has precedent on its side

Only a handful of crypto companies have taken on the SEC when charged with securities violations – the rest have settled. The first to try its luck, was Kik. The founder, Ted Livingston, was extremely open about his desire to meet the SEC in court over their charges. He felt that a victory for Kik would act as the first step toward establishing guidelines.

The KIK messenger app vs the SEC.

However, Kik lost in October 2020 – no surprises there. The judge ruled that the “undisputed facts show Kik offered and sold securities without a registration statement or exemption from registration.”

More recently, the decentralized media platform LBRY lost its legal battle with the SEC over whether its LBC token should be classified as a security. But the judge ruled that “the SEC is correct that potential investors would understand that LBRY was pitching a speculative value proposition for its digital token”.

These two defeats didn’t help Ripple’s cause at all. The SEC is now able to point to legal precedent to bolster its claims, making it even less likely that Ripple would get the XRP SEC lawsuit dropped.


Ripple will settle

The legal battle between Ripple and the SEC has been an attritional affair. Multiple motions have been debated, awarded, and denied. Still, little progress has been made with no XRP SEC lawsuit date being penciled in.

However, Ripple may have found itself a lifeline. In September, following almost two years of battle and no XRP SEC lawsuit end date on the horizon, both Ripple and the SEC came together to ask the judge to come to a settlement figure.

This came after Ripple scored a number of wins regarding evidence that the SEC wanted kept out of the case. It resulted in the judge accusing the SEC of not acting out of “a faithful allegiance to the law”, and also of “hypocrisy” in its treatment of key evidence in the case.

This XRP SEC lawsuit update was greeted enthusiastically by those faithful to Ripple. The settlement figure will most likely be lower than if Ripple had lost the case, but there is still no official XRP lawsuit end date. The judge has many factors to take into consideration, but there is now no chance of Ripple getting the XRP lawsuit dropped.

While the outcome is great for Ripple, it will add little clarity to the issue of when cryptocurrencies are considered securities and when they’re not, leaving the crypto sector firmly at square one on that front.


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