Fintech & e-commerce

FTX Founder Bankman-Fried Sentenced To 25 Years For Fraud, Conspiracy

Illustration of collapsing crypto/Jenga.

FTX founder Sam Bankman-Fried was sentenced to 25 years in prison on Thursday on seven criminal charges — two counts of fraud and five counts of conspiracy — related to the collapse of his crypto exchange and related hedge fund.

The sentence was significantly less than the 110-year maximum he faced and the 40 to 50 years prosecutors were seeking. Nevertheless, it is substantially more than the handful of years Bankman-Fried’s attorneys were seeking.

“Samuel Bankman-Fried orchestrated one of the largest financial frauds in history, stealing over $8 billion of his customers’ money,” said Damian Williams, U.S. attorney for the southern district of New York. “His deliberate and ongoing lies demonstrated a brazen disregard for his customers’ expectations and disrespect for the rule of law, all so that he could secretly use his customers’ money to expand his own power and influence,” Williams said.

In November, a jury convicted Bankman-Fried on all seven criminal charges he faced. The jury in Manhattan took just over four hours to decide the disgraced FTX founder stole about $8 billion from customers on his cryptocurrency exchange.

The fall

The sentencing is likely one of the final chapters in FTX’s epic fall from grace, which rattled the markets and took Bankman-Fried from the wunderkind white knight that was crypto’s savior to a poster child for greed and hubris.

The collapse is the greatest startup and investor failure of all time.

For perspective, Theranos had raised about $1.3 billion in funding and had a $10 billion valuation at its peak before the walls came tumbling down on Elizabeth Holmes and Sunny Balwani. Holmes was sentenced to 11.25 years in prison in 2022 and Balwani received nearly 12.75 years.

Bankman-Fried’s FTX crypto exchange and its U.S. counterpart — FTX US — had raised a combined $2.2 billion at a $32 billion valuation and $8 billion valuation, respectively, before everything fell apart.

FTX’s issues came into the public eye on Nov. 6, 2022, when Binance CEO Changpeng Zhao tweeted that Binance would sell its holdings of FTX’s native token, FTT. Zhao said the decision was due to “recent revelations that have came to light” about the token.

Earlier that month, reports came out that Bankman-Fried’s trading firm Alameda Research had a large portion of FTT on its balance sheet, possibly helping prop up its value.

FTT prices dropped like a rock amid the controversy and FTX was thrown into disarray as withdrawals mounted.

Bankman-Fried then wound down his Alameda trading platform and was seeking investors for emergency funding to FTX as it faced an $8 billion shortfall.

When none arrived, Bankman-Fried was exposed for the game he was playing with his customers and their money. FTX declared bankruptcy on Nov. 11, 2022.

Effects on venture investing

The exchange’s complete and utter collapse had a chilling effect on crypto. That was to be expected when one considers investors in FTX include the likes of the SoftBank Vision Fund, Sequoia Capital, Singapore’s Temasek Holdings, Paradigm and Lightspeed Venture Partners.

Venture funding to crypto-related startups fell to only $3.6 billion in 821 deals last year — a 78% drop from the $16.2 billion in 1,544 deals realized in 2022. However, so far this year, crypto investing has seen a bounce-back as Bitcoin prices have surged. So far in Q1, venture dollars already surpassed $900 million, per Crunchbase data. Last quarter, such funding was only $443 million.

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