By Luc Cohen and Jody Godoy
NEW YORK (Reuters) - The judge who will sentence Sam Bankman-Fried on Thursday rejected the former billionaire cryptocurrency wunderkind's argument that customers of the now-bankrupt FTX exchange he founded did not actually lose money, a potentially ominous sign for him.
Bankman-Fried, 32, faces the prospect of decades behind bars over what prosecutors have called one of the biggest financial frauds in U.S. history. His lawyers had argued for lenient punishment over his November conviction on seven fraud and conspiracy counts stemming from FTX's November 2022 collapse, that arguing customers would be made whole through the bankruptcy process.
But U.S. District Judge Lewis Kaplan said at the start of Bankman-Fried's sentencing hearing in Manhattan federal court that he had found FTX customers lost $8 billion, FTX's equity investors lost $1.7 billion, and that lenders to the Alameda Research hedge fund Bankman-Fried founded lost $1.3 billion.
"The defendant's assertion that FTX customers and creditors will be paid in full is misleading, it is logically flawed, it is speculative," Kaplan said. "A thief who takes his loot to Las Vegas and successfully bets the stolen money is not entitled to a discount on the sentence by using his Las Vegas winnings to pay back what he stole."
Kaplan has not yet announced the sentence, and the hearing could last hours. But the amount of money a judge finds fraud victims lost is a key element for a judge in determining a sentence.
The hearing marks the final step in Bankman-Fried's downfall from an ultra-wealthy cryptocurrency entrepreneur and major political donor to the biggest trophy to date in a crackdown by U.S. authorities on malfeasance in digital asset markets.
Bankman-Fried has vowed to appeal his conviction and sentence.
He faces a statutory maximum of 110 years in prison, but will likely receive less. Prosecutors are seeking a prison sentence of 40 to 50 years.
"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," the U.S. Attorney's office in Manhattan, which charged Bankman-Fried in December 2022, wrote in a March 15 sentencing memorandum.
Defense lawyer Marc Mukasey has argued that a sentence of less than 5-1/4 years would be appropriate.
Mukasey said FTX customers would likely be made whole in the bankruptcy process, and that Bankman-Fried worked diligently after the exchange's November 2022 collapse to recover funds.
"The memorandum distorts reality to support its precious 'loss' narrative and casts Sam as a depraved super-villain," Mukasey wrote in a March 19 court filing, referring to the prosecution's sentencing proposal.
Several FTX customers have written to Kaplan expressing dismay that they will be compensated based on the value of their cryptocurrency at the time of FTX's bankruptcy, rather than the higher levels at which those assets currently trade.
He has been detained at the Metropolitan Detention Center in Brooklyn since August 2023, when Kaplan revoked his bail after finding he likely tampered with witnesses at least twice.
Wearing a tan short-sleeve jail t-shirt, Bankman-Fried was led into the courtroom by members of the U.S. Marshals Service before the hearing started. His parents, Stanford University law professors Joseph Bankman and Barbara Fried, arrived at the federal courthouse earlier.
'PROMISE OF FALSE HOPE'
A Massachusetts Institute of Technology graduate, Bankman-Fried rode a boom in the values of bitcoin and other digital assets to a net worth of $26 billion, according to Forbes magazine, before he turned 30.
Bankman-Fried became known for his mop of unkempt curly hair and commitment to a movement known as effective altruism, which encourages talented young people to focus on earning money and giving it away to worthy causes.
He was one of the biggest contributors to Democratic candidates and causes ahead of the 2022 U.S. midterm elections.
But prosecutors say the responsible image he cultivated concealed his years-long embezzlement of customer funds.
At trial, three of his former close associates testified that he directed them to use FTX customer funds to plug losses at his crypto-focused hedge fund, Alameda Research.
Bankman-Fried testified in his own defense that he made mistakes such as not implementing a risk management team, but denied he intended to defraud anyone or steal customers' money.
Kaplan said he found Bankman-Fried had testified falsely.
In their sentencing memorandum, prosecutors said Bankman-Fried could commit fraud again if released at a young age.
They pointed to his personal writings in the weeks following FTX's collapse, in which he mused about options for restoring his image such as "come out against the woke agenda" or pushing the idea that "SBF died for our sins."
"It is realistic that he will settle on a narrative, lean into it, and convince other people to part with their money based on lies and the promise of false hope," prosecutors wrote.
(Reporting by Luc Cohen in New York; Editing by Will Dunham, Noeleen Walder and Daniel Wallis)
Did you find this insightful?
Bad
Just Okay
Amazing