The fraud trial of the decade gets underway next Tuesday when a jury will be selected to hear allegations against Sam Bankman-Fried, disgraced founder of the FTX crypto exchange. In subsequent weeks, prosecutors will produce a mountain of evidence—including documents and testimony from Bankman-Fried’s own lieutenants—to make the case he looted billions of dollars of customer money for personal ends.
If the evidence holds up, Bankman-Fried will join Theranos founder Elizabeth Holmes and Ponzi-schemer Bernie Madoff on a list of this century’s most notorious swindlers, and, like them, be sentenced to a long term in prison. Veteran lawyers interviewed by Fortune all agreed that prosecutors appear to have plenty of evidence to put him away. So why didn’t Bankman-Fried plead guilty—a step that could have shaved significant time off any sentence?
According to experts on white-collar crime, Bankman-Fried’s decision to take his chances at trial can be explained by both strategic and psychological factors. But whatever his motivations, the outcome is likely to be the same: decades—or even a lifetime—behind bars.
‘Everyone is testifying against him’
Renato Mariotti, a former prosecutor with the securities fraud division of the Justice Department, had a succinct assessment of Bankman-Fried’s odds before the jury: “He’s screwed.”
Mariotti, now a trial partner at Bryan Cave Leighton Paisner, told Fortune that the evidence against Bankman-Fried is overwhelming and that the FTX founder doesn’t appear to have any obvious defenses that could get him off the hook.
Bankman-Fried’s lawyers have signaled they will try to portray their client as a well-meaning soul who got in over his head as a result of the venal and inept behavior of previous FTX attorneys. But so far, they have failed to formally raise a so-called advice of counsel defense.
According to Mariotti, such a defense rarely succeeds, and it’s unlikely Bankman-Fried’s attorneys would actually put it before a jury. A big reason for that is blaming FTX lawyers would undercut attorney-client privilege and could open the door to those lawyers sharing documents and testimony that include further evidence of his guilt.
Other experts in white-collar crime shared Mariotti’s assessment about Bankman-Fried’s chances in court.
“It seems like a very strong case. Everyone is testifying against him,” said Randall Eliason, a former federal prosecutor who currently teaches about white-collar crime at George Washington University.
Among those set to take the stand are Bankman-Fried’s onetime girlfriend, Caroline Ellison, who ran his hedge fund and reportedly colluded with him to illegally tap into customer money from FTX. Other cooperating witnesses include the former FTX CTO and longtime friend of Bankman-Fried, Gary Wang, who allegedly tampered with the exchange’s accounting software in order to purge trading losses from the hedge fund.
In light of all this, it’s an open question as to why Bankman-Fried didn’t cop to the charges after his arrest last December—a tactic that would likely have produced a deal to shave years off his prison sentence. That opportunity has now passed, however, as the value of any potential plea deal diminishes the closer a case gets to trial.
Hoping for ‘one sympathetic juror’
Bankman-Fried’s decision to try his luck before a jury may have a simple explanation: He has nothing to lose. Given the enormous magnitude of his alleged crimes, any deal with prosecutors may have meant little in light of the potential sentence.
“If you can be told you can go to jail for 50 years or 30 years, is that really a choice?” asked Chris LaVigne, a white-collar defense specialist at law firm Withers.
Eliason, the George Washington professor, expressed a similar sentiment. He observed that even if a defendant faces long odds, all they need is one sympathetic juror to obtain a hung jury and avoid a guilty verdict.
“Some people roll the dice because if they plead guilty, they’ll go to jail—so they’ll try pull a rabbit out a hat,” said Eliason.
In the case of Bankman-Fried, however, there’s a good chance his not-guilty plea is based not on cold calculations but a sincere belief that he’s somehow not to blame for the billions of dollars of missing customer money.
“You can’t take away the personality,” said LaVigne. “If SBF vehemently believes he didn’t do anything wrong, then—whatever his lawyers tell him—he’s going to believe that.”
Mariotti also suggested that Bankman-Fried may sincerely believe he’s not responsible, likening him to Holmes, who blatantly lied about the effectiveness of her blood-testing technology, bilking Theranos investors and endangering human lives in the process.
“The really good fraudsters believe their own bullshit,” said Mariotti.
The upshot is that, barring an extraordinary turn of an events, Bankman-Fried—who has been detained in a Brooklyn jail after a judge rescinded his bail for witness tampering—is almost certainly going to federal prison. The bigger question is for how long.
A ‘once in a decade’ case
The Justice Department, following its initial spate of charges in November, later filed an additional indictment against Bankman-Fried that accuses him of seeking to bribe a Chinese official. Those allegations are the subject of a separate trial next year, but, on their own, the initial seven charges—ranging from fraud to conspiracy—carry a cumulative maximum sentence of over 100 years.
Such an outcome is unlikely though not impossible. Experienced lawyers scoff when media headlines blare that a defendant accused of nonviolent offenses could go to jail for a century—or longer. While it’s possible to stack the maximum sentences for related crimes—such as the seven at issue in the upcoming Bankman-Fried trial—to arrive at an eye-popping prison sentence, the reality is that judges will typically consolidate the offenses and come up with a more modest total.
According to Jeff Schenk, a former federal prosecutor who is a partner at Jones Day, judges are guided by federal sentencing guidelines that supply a point system based on various criteria—including whether a defendant has chosen to plead guilty. In the case of fraud cases, the guidelines call for knocking off up to three points for a guilty plea, which translates to a reduction of a few years.
Schenk added that Bankman-Fried’s decision not to cop a plea means he not only forfeits those reduced points, but that he could incur a so-called trial penalty—meaning the judge could tack on extra time based on what happens in the courtroom.
“The ‘trial penalty’ often results in a longer sentence since the judge learns so much more during the trial and feels sympathy for the victims,” said Schenk.
The nature of the victims can also inform the sentence, he noted, recalling witnesses in Bernie Madoff’s trial who testified they lost their live savings and had to take up service industry jobs in retirement. In the case of Bankman-Fried, however, the primary victims may turn out to crypto speculators whom a jury could find less sympathetic.
The overriding factor, though, in determining the sentence in fraud cases is the amount of money lost—and this could spell big trouble for Bankman-Fried. Prosecutors have pegged the scope of the FTX fraud as high as $9 billion, which dwarfs all but the most egregious swindles.
If Bankman-Fried is found guilty, the notoriety of his crimes puts him in the same league as Madoff, who was sentenced to 150 years in prison.
“This is a once-in-a-decade fraud case,” said LaVigne. “You had Enron, you had Bernie Madoff, and now you have Sam Bankman-Fried. If he’s found guilty, I can see the judge stacking the sentence pretty high.”
