Written by Luke Cohen
NEW YORK (Reuters) – A few years after graduating from college, Sam Bankman Fried worried he wasn't taking enough risks.
So, the son of two law professors at Stanford Law School resigned from his job on Wall Street and in 2017 started a cryptocurrency hedge fund, setting off a chain of events that will culminate Thursday in his sentencing for what federal prosecutors called one of the largest frauds in the world. financial in the world. History of the United States.
The prosecution is calling for Bankman Fried (32 years old) to be imprisoned for between 40 and 50 years, while his defense lawyers said he should get less than five and a half years.
Two years after launching the hedge fund, Alameda Research, Bankman-Fried founded FTX in 2019, an exchange that allows users to buy and sell digital assets like Bitcoin. Cryptocurrency valuations have soared, pushing Bankman-Fried to a net worth of $26 billion by October 2021, according to Forbes, before he even turns 30 — and the 25th richest person in America.
He has parlayed this fortune into political influence, becoming one of the biggest donors to Democratic candidates and causes ahead of the 2022 US midterm elections. Bankman-Fried, who lives at an expensive resort in the Bahamas, has become known for his shaggy, curly hair and wearing rumpled shorts, even when he hosts VIPs including Bill Clinton.
In a cryptocurrency sector plagued by hacks and money laundering, Bankman-Fried has hired celebrities including NFL quarterback Tom Brady and comedian Larry David to appear in ads portraying FTX as a safe. He has publicly supported efforts to regulate cryptocurrencies.
But prosecutors say his calm demeanor and cultivation of a responsible image concealed his embezzlement of client funds over a period of years. They claim that the theft reached its peak in 2022, when cryptocurrency prices fell and FTX funds were used to offset losses at Alameda.
A jury convicted him of seven counts of fraud and conspiracy on November 2, after a month-long trial in Manhattan federal court.
Three former members of his inner circle, who pleaded guilty and agreed to cooperate with prosecutors, testified against him and painted an unflattering picture of his character, detailing instances in which he angrily attacked colleagues and suggesting that his quirky personality was often histrionic.
“He understood the rules, but decided they did not apply to him,” prosecutors wrote in a March 15 sentencing memorandum. “He knew what society considered illegal and immoral, but he ignored it based on a malignant paranoia guided by the defendant’s values and sense of superiority.”
Bankman-Fried pleaded not guilty and vowed to appeal his conviction and sentence. Testifying in his own defense during the trial, the MIT graduate acknowledged inadequate risk management, but denied stealing the money.
He said he made mistakes, such as not implementing a risk management team, which harmed FTX's clients and employees. But he said he did not intend to defraud anyone or steal customers' money.
“We thought we might be able to build the best product on the market,” Bankman-Fried said in his Oct. 27 testimony. “And it turns out it's basically the opposite.”
He sought to avoid the “comfortable” path.
Bankman-Fried didn't have much experience with cryptocurrencies before founding Alameda, which initially made money by exploiting differences in cryptocurrency prices between the United States and Asia. He is a physics major at MIT, and told the FTX podcast that he didn't apply himself in the classroom and didn't know what to do with his life for most of his college days.
But during those years he became interested in a movement known as Effective Altruism, which encourages talented young people looking to make a mark on the world to focus on making money and donating it to good causes. This led him to take a job as a quantitative trader at Jane Street, but he began to doubt whether he was earning all he could.
“If I really believe I should try to maximize expected values, that would probably mean exponentially riskier strategies than seems intuitively true,” he said in the June 4, 2020 podcast. “I must be careful not to fall prey to trying to choose a comfortable path.”
He brings in Gary Wang, an old friend from math camp, and later Carolyn Ellison, an influential fellow altruist from Jane Street and Bankman-Fried's ex-girlfriend. They will both join him in the Bahamas, where they share a $30 million penthouse with other Alameda and FTX executives, including Nishad Singh.
Wang, Ellison, and Singh all pleaded guilty and testified against Bankman-Fried at trial. They have not yet been sentenced.
Bankman-Fried was jailed in mid-August, after U.S. District Judge Lewis Kaplan revoked his bail for allegedly attempting to tamper with witnesses at least twice — including by sharing Ellison's private writings with a New York Times reporter.
In a letter to Kaplan, Bankman-Fried's psychiatrist, George Lerner, wrote that his patient was on the autism spectrum. Bankman's father Fred, law professor Joseph Bankman, wrote that his son had long struggled to make eye contact and respond to social cues, but the media didn't care while FTX was thriving.
“Once the company collapsed and his fortune was gone, people became less tolerant, and interpreted these same traits…as a sign of disrespect, evasion, or lying,” Bankman wrote.
(Reporting by Luke Cohen in New York; Editing by Noeleen Walder and Daniel Wallis)
