The Rise and Fall of Sam Bankman-Fried: Crypto Poster Boy’s 25-year Sentence Reflects Difficulties in White Collar Crime Sentencing

In an industry characterized by roller-coaster fluctuations, the sudden downfall of one of cryptocurrency’s biggest stars might have been anticipated. Yet, even seasoned crypto enthusiasts and experts were taken aback by the swift and shocking collapse of Sam Bankman-Fried who, as the former CEO of FTX, ran what was once the third-largest crypto exchange in the world.

Sam Bankman-Fried (widely recognized as “SBF”) initially made his fortune as the founder of Alameda Research, a quantitative trading firm that actively traded in cryptocurrency markets. SBF steered Alameda to success when crypto was booming in 2017 through capitalizing on the difference in the value of Bitcoin between Western and Asian exchanges, creating a phenomenon referred to as the “Kimchi premium.”

However, SBF was not a household name until he channeled his Alameda profits into launching FTX in 2019, a cryptocurrency exchange platform which specialized in derivatives, options, and leveraged products. This venture propelled SBF to prominence in the crypto space, even generating endorsements from A-list celebrities like Tom Bradyand Larry David. He appeared to usher in a new era of crypto order and public acceptance, advocating for greater transparency in the industry and forging relations in Washington to bring crypto towards the mainstream.

SBF stood out from the stereotypically reclusive crypto billionaires. Unlike other hermetic crypto moguls, he embraced the limelight and did not claim to be driven primarily by a passion for the decentralized ethos of cryptocurrency. Instead, SBF openly championed “efficient altruism,” a philosophical movement that uses calculations to understand how people can use their time, money, and resources to best help others. He touted an “earn to give” mantra, ensuring that FTX contributed 1% of all fees to philanthropy and even originally requiring his employees to donate 50% of their salaries to effective charities.

This façade evaporated almost overnight in November 2022, when a some of Alameda’s financials were unveiled in a CoinDesk exposé. A leaked Alameda balance sheet revealed that the firm was on unstable grounds and that its ties with FTX were much more concerning than previously disclosed. Within days valuation of FTX and its proprietary token, FTT, plummeted and SBF was forced to resign from both Alameda and FTX in shame. 

[SBF] perpetrated one of the biggest frauds in American history, a multibillion-dollar scheme designed to make him the king of crypto.

Damian Williams

Following the news, federal authorities initiated an investigation that unearthed the extent to which FTX customer funds had been misappropriated to support SBF’s lavish lifestyle. As the proceedings unfolded, SBF found himself at the center of one of the highest-profile financial crime cases in recent memory. In November 2023, a federal court in New York convicted him on multiple charges, including fraud, conspiracy, and money laundering. Damian Williams, a U.S. attorney for the Southern District of New York, described the situation bluntly: “[SBF] perpetrated one of the biggest frauds in American history, a multibillion-dollar scheme designed to make him the king of crypto.” Despite facing a statutory maximum of 110 years, the recent 25-year sentence, handed down to SBF on March 28, 2024, sparked debate within the legal community.

Federal prosecutors were shooting for somewhere in the range of 40-50 years. Paul Tuchmann, former federal prosecutor and current partner at Wiggins and Dana, was surprised by the leniency of the sentencing. “Frankly I am surprised based on the demeanor and ruling that Judge Kaplan made during the trial. The Judge generally agreed with the prosecutors in terms of the nature of the seriousness of SBF’s conduct and the fact that he perjured himself during the course of his testimony.” Tuchmann also drew on the lack of remorse SBF showed during trial, the fact that he had knowingly obstructed justice, and—of course—the staggering $8 billion amount of customer funds lost. 

Others have labelled the 25-year sentence, which is nearly 5 times what SBF’s defense was asking for, “absurd.” Kevin O’Brien, a defense attorney specializing in white-collar crime at Ford O’Brien Landy, explained, “It’s a huge sentence. [But that] is what sentencing guidelines have done to our sentencing systems. You just look at the dollar value of the loss, which is what happened here. You come up with these astronomical sums.” While Judge Kapan didn’t follow governmental recommendations, O’Brien argues that these recommendations certainly exerted a gravitational pull towards what he believes is a disproportionate sentence. O’Brien and others point to the relative youth of Bankman and the “incredible promise” he holds for society as a factor for consideration.  

SBF’s sentencing highlights challenges in meting out justice for white-collar criminals. The 25-year sentence is a substantial deterrent, which some argue could be equally achieved with a lesser term, given the near allergic reaction white-collar criminals have to the idea of spending any amount of time in prison. 

Nonetheless, the focus on SBF’s achievements also underscore broader concerns about disparities in sentencingbased on socioeconomic status. This was highlighted in the 2018 decision by the 10th Circuit in United States v. Sample. Here, the court overturned a sentence of probation for a wealthy defendant who defrauded investors, costing them over $1 million. This reversal  was based on the District judge’s decision to allow the defendant to keep his high-paying job to repay the victims. The Court of Appeals criticized this approach, noting, “we are puzzled by the court’s implicit suggestion that if the defendant were poor and unemployed, he might get a prison term,” and condemned the reliance on a defendant’s financial status as a primary consideration in sentencing.

Considering such considerations, the sentencing of SBF prompts a broader dialogue about equity in legal consequences, especially when the crimes involve vast sums of money and significant public interest. As society grapples with these issues, the case of SBF serves as a stark reminder of the interplay between justice and public perception—particularly relevant as SBF announced his plans to appeal the conviction earlier last week. 

Waleed Alkoor

Waleed Alkoor is a 2L at the University of North Carolina School of Law. For more analysis on crypto, law and regulation be on the lookout for Waleed’s recent development, Mining for Answers: Decrypting the Securities Puzzle of Cryptomining Hosting Contracts, in Volume 25, Issue 4.