In a letter to the Department of Justice, an FTX customer who lost $4 million when the exchange declared bankruptcy in 2022 voiced frustration at a widely circulated myth that crypto exchange consumers would ever be compensated.
“I have scraped the docket of scheduled claims and calculated the exact amount stolen,” stated the former FTX client, whose name has been kept hidden by the government. “The total value of customer liabilities is $19,722,911,002.84.”
That letter arrived on U.S. District Judge Lewis Kaplan’s desk this week, and on Thursday, FTX founder Sam Bankman-Fried will be informed of his prison sentence for his involvement in the exchange’s failure. Sentencing will begin at 9:30 a.m. on the 26th floor of the federal courthouse in downtown Manhattan, where a jury found the former cryptocurrency leader guilty of all seven criminal counts against him in November.
The victim, who wrote that 30 years of money had been transferred into FTX three months before the exchange crashed, is part of prosecutors’ last-ditch effort to persuade Judge Kaplan before the sentencing.
“My whole life has been destroyed,” the individual wrote. “I have two small children, one born just before the collapse. Beyond the money, I lost my happiness, ability to get out of bed, and will to live. “My wife is suicidal and depressed.”
Similar allegations were revealed during Bankman-Fried’s month-long criminal trial last year. Prosecutors won their case after convincing jurors that Bankman-Fried stole at least $8 billion from customers. For some, this meant financial devastation.
“In its sentencing submission, the prosecution has included moving accounts from FTX’s former customers that speak to the devastation experienced by those losing their money, the uncertainty of wondering whether they might ever get any of it back, and dealing with the emotional fallout of being duped,” said Yesha Yadav, an associate professor of law and Vanderbilt University’s Graduate School of Law. “These victim impact statements can be very powerful.”
Bankman-Fried, 32, faces a maximum term of more than 100 years in jail, while the government has requested a sentence of 40 to 50 years. The defense is asking for no more than 6.5 years.
Judge Kaplan has been deliberating on the proper punishment for Bankman-Fried’s offenses in connection with the implosion of his $32 billion cryptocurrency enterprise for months.
CNBC spoke with former federal prosecutors, trial attorneys, and a variety of lawyers who defend white collar criminals to get their thoughts on what to anticipate on Thursday.
Destructive testimony
Bankman-Fried was found guilty of wire fraud, conspiracy to commit wire fraud against FTX customers and lenders to sister hedge fund Alameda Research, conspiracy to commit securities fraud, conspiracy to commit commodities fraud against FTX investors, and conspiracy to commit money laundering.
The defense team has claimed that Bankman-Fried’s sentence should reflect the possibility that FTX consumers will be reimbursed in part or in full. The risk of such eventuality has increased in recent months due to the rising value of cryptocurrencies and other assets controlled by FTX, such as its holding in artificial intelligence startup Anthropic.
Despite the bankruptcy estate’s pledge to repay consumers, many of FTX’s thousands of victims claim that the exchange’s new leadership team has substantially devalued their cryptocurrency stakes.
“A lot will be said about the loss at the time of the conduct, not the recovery or potential recovery after it was discovered,” said former federal and state prosecutor David Weinstein, who now works as a corporate compliance and white collar defense attorney for Jones Walker. Weinstein expects to receive a sentence of 30 to 40 years.
Mark Bini, a former state and federal prosecutor and US assistant attorney who specialized in financial crimes, expects a sentence of at least 30 years.
“Probation calculates the guidelines at 110 years,” said Bini, who presently represents white collar crypto defendants as a member of Reed Smith’s On Chain digital asset unit. “I think the judge is likely to side with probation and the government on the loss amount and the appropriate guidelines.”
Judge Kaplan, 78, is a Southern District of New York veteran who has presided over some of the most high-profile cases to come through his bench. Throughout the defendant’s four days on the stand, he was impatient with Bankman-Fried.
“Unfortunately for SBF, some of his testimony at trial came across as highly evasive, somewhat cold, and often contradictory,” said Yadav, adding that a sentence of 20 to 25 years could provide Judge Kaplan with a way to balance the severity of the crime with recognition of customer recoveries and the possibility of future rehabilitation.
Former federal prosecutor Neama Rahmani called Kaplan “old school” and projected a sentence of 20 to 30 years.
According to Tre Lovell, a Los Angeles corporate law expert, the primary considerations Kaplan would evaluate are the scope of the fraud and the fact that Bankman-Fried seemed to lie under oath while displaying no regret.
“The judge isn’t going to cut Bankman-Fried a break just because FTX has recovered a lot of funds to offset the amount that customers lost,” Lovell told the court. “The judge is just going to look at Bankman-Fried’s conduct at the time he was in charge of the company, not what the company did after he stepped down as CEO.”
Bankman-Fried has one last chance to appear in front of the judge and demonstrate some amount of regret as well as a vow to benefit society.
“If he says he’s had a chance to think about what he did and that he’s very sorry for misusing the hard-won funds of investors, and that he wants to use his acumen in this field for the public good, then he may walk out with a prison sentence that is south of 20 years,” Lovell went on to suggest. “In court, it’s never too late to apologize. However, simply being remorseful will not result in a significant reduction in his sentence.
Sam Bankman-Fried FTX fraud victim tells judge: ‘My whole life has been destroyed’
