Crypto Criminal Canned
The Sentencing of Sam Bankman-Fried - Crypto Criminal or Effective Altruist?
Photo – Wiki Commons
Ten billion dollars. Not the sort of change you lose down the back of the sofa, at least not in my house. That is one estimate of the amount lost by investors when Sam Bankman-Fried’s (SBF) FTX crypto exchange went bust. There was huge press interest in the scandal at the time. By one of those lucky breaks that rarely seem to happen to writers, the author Michael Lewis just happened to be embedded with SBF writing his biography, when it all blew up. A link to a review of Lewis’s book is at the end of this article.
Then, after a very public trial in November 2023, at which SBF was found guilty, things seemed to go very quiet, crickets as my US friends would say. The crypto criminal or maligned altruist, depending on how you see him, has been banged up pending sentencing which took place this week.
Remarkably in the meantime, a substantial portion of lost investors’ funds have been recovered. This process has been helped by a boom in the value of Bitcoin in the interim. So does SBF deserve a long sentence for being a criminal mastermind, who set out to defraud investors and enrich himself? Or is he a much misunderstood and maligned philanthropist who made mistakes? Or perhaps somewhere in the middle of these two extremes? The sentencing shows the view of the legal establishment on this issue.
Sentencing
Judge Lewis Kaplan of the Southern District of New York sentenced SBF to 25 years, two and a half years for each billion lost. SBF had been facing a sentence of up to 50 years, with a prosecution memo stating:
“With all the advantages conferred by a comfortable upbringing, an MIT education, a prestigious start to his career in finance, and a worthy idea for a startup business, Bankman-Fried could have pursued the … altruistic life he has sketched out in his sentencing submission. But instead, his life in recent years has been one of unmatched greed and hubris; of ambition and rationalization; and courting risk and gambling repeatedly with other people’s money.”
SBF’s former girlfriend Caroline Ellison, and several other former FTX executives, testified against Bankman-Fried in exchange for pleading guilty to similar federal charges and their cooperation with prosecutors.
To compare the crime with other frauds, Bernie Madoff, the confidence tricker behind a $20 billion Ponzi scheme, was sentenced to 150 years back in 2009, for what the trial judge described as “one of the most egregious financial crimes of our time.” That fraud took place over a prolonged number of years.
Too near the sun
SBF is a fascinating character. Born in 1992, at the peak of his wealth he was listed as the 41st richest American in the Forbes 400, before his Icarus-like fall from grace, to bankruptcy and a criminal trial. In his heyday, this poster boy for the crypto crew met the rich and famous and was a leading advocate of Effective Altruism (EA) before falling out with other EA proponents when they got cold feet over some of his financial practices.
It is reported that while working at the financial firm “Jane Street”, SBF gave half his salary to effective altruism charities and animal welfare groups, and after making his fortune in cryptocurrency arbitrage, it is later reported that he gave away US$50 billion in 2021 to pandemic relief in India and anti-global warming initiatives.
His life raises numerous questions, such as would someone who cared so much about others that he gave away much of his salary when he worked in finance, have then set out to defraud people? Would someone who cared about animals enough to become a vegan, have really been the type of person who wanted to harm his fellow humans by stealing their money?
While clearly the loss of investor funds is a serious matter, it does seem as though SBF has been made a scapegoat for a failure of regulation. Where were the regulators to prevent huge transactions that moved investors’ money out of the FRX exchange into a different business? Why was the exchange under-capitalised in a way that left it vulnerable to large withdrawals? If the lack of regulation was due to the exchange being deliberately located where it could escape normal financial controls, where were the warnings to investors about the risks they were taking? Then there are the investors themselves: did they not realise they were effectively gambling, by depositing large sums of money in an unorthodox investment vehicle?
Six Degrees
It is sometimes said that we are connected to anyone else on the planet by six degrees of separation or less. So my connection to SBF is that my brother, the philosopher David Pearce, wrote a letter in support of SBF to the trial judge by way of mitigation ahead of sentencing, highlighting the good that SBF had tried to do. David also has a friend who attended the trial in New York. Hardly a claim to fame, but a distant connection all the same. My brother is also an advocate of effective altruism and the reduction of suffering, and feels that SBF has been harshly treated, that he was naïve and reckless rather than a fraudster. Many who commit far worse crimes seem to escape justice completely, torturers and war criminals among them.
The sentencing judge clearly took a different view. I would imagine prison life must be a nightmare for SBF, a flawed genius with a very short attention span, shut in a small space with few distractions. Perhaps in time, the sentence may be reviewed given that investor funds have been partly recovered, and perhaps the scapegoating of one individual, will be seen in a wider context of the failure of regulators who seem to have been asleep on the job.
Further reading:
BBC coverage of the sentencing:
https://www.bbc.co.uk/news/live/world-us-canada-68656415
A review of “Going Infinite” – a biography of Sam Bankman-Fried by Michael Lewis:
https://medium.com/p/ff8e7e3f78d9
A review of Zeke Faux’s “Number Go Up” about the wider world of cryptocurrency:
https://medium.com/@johnpearce650/take-the-orange-pill-3689fa2aee67
A discussion on “Effective Altruism”
https://medium.com/@johnpearce650/is-altruism-evil-2f3cc599cb7e
More on the life of SBF:
I agree. I've also read (and pardon if I am wrongly applying this to SBF), he is on the autistic spectrum. Although I personally believe we probably are all on this 'spectrum', if he has been noticed with this ability, then he thinks differently as well. Doesn't that play a role in his intentions? Shouldn't that have also been considered when they applied sentencing? Regardless though he should be viewed in the same manner as all who were involved and was not. I, too, felt he was an obvious scapegoat. I'm glad to read others felt that way.