How SBF verdict may be a ‘watershed’ moment for crypto

The conviction of FTX founder Sam Bankman-Fried on Thursday may prove a “watershed moment for the crypto industry” that “looks to reignite the regulatory debates.”

That is according to Daniel Seely, financial services lawyer and cryptocurrency expert at Freeths, a UK law firm.

He said the verdict will “no doubt give other businesses and individuals in this market cause for concern.”

“They may hope that, by getting SBF, the government may have less need to pursue proceedings against other businesses to the same extent as they did with SBF, which may mean there is more room available for defences and plea deals,” he told DL News.

His comments came in the wake of a federal jury in New York finding Bankman-Fried guilty on seven counts of fraud, money laundering, and conspiracy after a month-long trial.

He faces up to 110 years in prison.

‘It’s a warning, this case, to every single fraudster out there who thinks that they’re untouchable’

—  Damian Williams, the top federal prosecutor in New York

Damian Williams, the top federal prosecutor in New York, spoke outside the courthouse after the verdict was rendered.

“It’s a warning, this case,” Williams said, “to every single fraudster out there who thinks that they’re untouchable, that their crimes are too complex for us to catch, or that they’re too powerful for us to prosecute, or that they could try to talk their way out of it when they get caught.”

The verdict came one year after the publication of an exposé that brought down Bankman-Fried’s $32 billion empire, a timeline a former prosecutor said was speedier than what is normally expected in complex cases like this.

Following the FTX collapse, regulators — spearheaded by US Securities and Exchange Commission chair Gary Gensler — fired off a barrage of lawsuits and enforcement actions against crypto companies.

While US lawmakers have argued for new laws to regulate the industry on the back of the back of the FTX crash, those efforts have been slowed by Republican Party infighting, and more recently Israel’s war with Hamas in Gaza.

Several other high-profile crypto chieftains are awaiting the outcome of their own criminal tribulations.

Alex Mashinsky, the co-founder and former CEO of lending platform Celsius Network, which collapsed last summer, faces a salvo of federal criminal and civil charges from several agencies.

His trial is slotted for September next year.

At the same time, Terra co-founder Do Kwon is in jail in Montenegro, awaiting the results of extradition process that could see him face criminal charges in the US or South Korea.

His co-founder Daniel Shin’s criminal trial began in South Korea earlier this week.

This is not the end of the FTX drama, as Bankman-Fried’s sentencing is set for next March 28.

Lawyers expect Bankman-Fried to receive a tough sentence because he went to trial and did not plead guilty like many of his former associates, such as Caroline Ellison, the onetime head of Alameda Research.

Bettors on prediction market Polymarket put the odds of that happening at 8% and the likelihood of him spending the next 50 years in jail at 35%.

‘We will probably see more action against other members of the FTX board.’

—  Daniel Seely, Freeths

“We will probably see more action against other members of the FTX board, and further details about what went wrong at FTX will probably come out, however these will likely draw less attention now that the SBF trial has taken place, since SBF was seen as the centre of the whole operation,” Seely said.

Three of Bankman-Fried’s inner circle — the ex-CEO of his crypto investment firm Alameda Research and former girlfriend Caroline Ellison, FTX co-founder and former chief technology officer Gary Wang, and one-time FTX head of engineering Nishad Singh — pleaded guilty and testified against him in hopes of reducing their sentences.

Their sentencing will come later.

While Bankman-Fried has yet to appeal the case, his lawyer Mark Cohen said “Bankman Fried maintains his innocence and will continue to vigorously fight the charges against him.”

“We respect the jury’s decision,” Cohen said after the verdict. “But we are very disappointed with the result.”

Bankman-Fried still faces multiple counts of foreign bribery conspiracy and bank fraud that are scheduled for a separate trial due to start in March 2024.

Judge Lewis Kaplan has asked the prosecution to provide an update by February on whether it will press on with those charges.

Eric Johansson is DL News’ London-based news editor. Got a tip on the trial or another story? Reach out to him at eric@dlnews.com.