Sam Bankman-Fried, the embattled co-founder of the now-defunct cryptocurrency exchange FTX, was sentenced to 25 years in prison on Thursday, marking the end of one of the most dramatic collapses in the crypto industry’s history.

The Context

The sentencing follows a tumultuous trial that ended in early November of last year where he was convicted of a litany of charges including fraud, conspiracy, and violating campaign finance laws, among others.

In delivering the 25-year prison sentence to Bankman-Fried, U.S. District Court for the Southern District of New York Senior Judge Lewis A. Kaplan addressed the financial harm inflicted upon investors, customers and lenders, amounting to billions in losses.

Central to Bankman-Fried’s downfall was the misuse of $8 billion of customer funds. Customers found that their investments were illicitly diverted to cover risky bets by its sister firm, Alameda Research. The misuse of funds violated basic principles of financial stewardship and left countless users unable to withdraw their investments as the exchange teetered on the brink of failure.

The sentence reflects findings of Bankman-Fried’s fraudulent misuse of the customer funds, obstruction of justice through attempted witness tampering, and multiple instances of perjury.

What We Know

The fall of FTX from a crypto empire to a pillar of financial mismanagement culminated in its bankruptcy filing in November 2021. Once the second-largest crypto exchange globally (behind Binance), FTX’s reputation for security and innovation crumbled under the weight of internal financial revelations.

In early November 2022, leaked documents exposed the deeply entwined financials of FTX and Alameda Research, revealing that a substantial portion of Alameda’s assets was tied up in FTX’s own cryptocurrency, FTT. That disclosure set off a catastrophic loss of confidence.

The crisis peaked on November 11, 2022, when FTX and its affiliates, including Alameda Research, filed for bankruptcy, signaling the collapse.

Bankman-Fried’s subsequent arrest in the Bahamas in December 2022 and the guilty pleas from key figures within the organization exposed the mismanagement and criminal activities at the heart of FTX’s downfall.

Views

“Sam’s performance solidified my belief that he’s unlikely to be rehabilitated by any measures the state can perform to punish him,” Kathleen Breitman, co-founder of blockchain-based smart contract platform Tezos, shared with Newsweek via email.

The cryptocurrency expert questioned whether the 25-year sentence can truly account for the gravity of his actions, observing the fact that more than a million FTX customers were affected, resulting in the losses exceeding $8 billion. For comparison, Theranos’ Elizabeth Holmes received about 11 years, while former WorldCom CEO Bernie Ebbers and former Enron CEO Jeff Skilling received 25 and 24 years, respectively.

Breitman also touched on Bankman-Fried’s political maneuvers, describing him as a “political animal” who sought to create a regulatory moat around FTX through political donations north of $45 million.

“SBF’s imprisonment will do nothing to rehabilitate him, judging by his statements that show no traces of remorse,” she said, suggesting that accountability extends beyond prison sentences.

“FTX’s story is the perfect example of hubris and grift. Had this type of theft happened to participants in any other industry, I think the public outcry and sympathy for its victims would have been much greater.

“Instead, my sense is that the general public feels like cryptocurrency enthusiasts got what they deserved for showing up to a casino.”

What’s Next?

The focus now shifts to the FTX customers and the repayment process. According to recent statements from FTX captured in a Reuters report issued last week, the exchange anticipates fully reimbursing its customers. However, the reimbursements will be calculated based on the cryptocurrency values of November 2022, disregarding any potential gains from the market’s subsequent upswing.

The decision has led to widespread dissatisfaction among FTX users who are still waiting to receive their funds.

The report noted that court filings in Delaware show claims totaled $31.4 billion against FTX’s available assets of $13.7 billion, leaving a gap of nearly $20 billion.

As for Bankman-Fried, since the crime was under federal jurisdiction, the U.S. Bureau of Prisons will consider which federal prison to send him to.

Update 3/28/24, 12:49 p.m. ET: This story has been updated with additional information and comment from Kathleen Breitman.