Sam Bankman Fried Criminal Verdict: Could Crypto Regulations Prevent It?

Sam Bankman Fried or SBF in November 2022 filed for Chapter 11 bankruptcy in the United States. After a long haul, the former CEO of FTX is guilty of all seven counts of conspiracy, and fraud. After hours of deliberation, the jury declared its verdict within ten minutes. His parents were in shock in the courtroom of the Southern District Court of New York. 

However, the major question is, how does Fried reach in such a situation? If crypto regulations were in place, could he avoid this situation?

Well, some experts suggest if the regulations were in place, Fried could have never been able to embezzle his customer funds. 

What Was FTX’s Fraudulent Intent?

During the trial, it was revealed that FTX had been using Alameda Research as a “payment processor” and commingling funds with one of its subsidiaries, Northern Dimension. Although this may not have been done with fraudulent intent, it still poses a problem due to the lack of transparency and accountability. 

In securities law, commingling of funds is considered a “dirty word,” as one attorney observing the trial pointed out. This raises the question of whether proper regulations in the crypto industry could have prevented such practices and avoided the downfall of Bankman-Fried.

Prosecutors alleged that Bankman-Fried committed embezzlement by intentionally and fraudulently using billions of dollars from venture capital investments, real estate acquisitions, and political donations for personal gain, without any authorization. It is important to note that these funds did not belong to him.

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Sam Bankman Fried Defense Fails to Defend the Misappropriation of Funds

SBF’s defense failed to prove that the $8 billion missing from clients was due to the market downturn, rather than the misappropriation of funds. Which one could avoid with proper corporate controls? He had grand ambitions of becoming the US President. SBF believed that expanding FTX was the only way to fill the billion-dollar hole in its balance sheet. 

However, this proved to be too little too late for FTX. As Warren Buffett famously said, “It’s only when the tide goes out that you discover who’s been swimming naked”.  This statement holds for Bankman-Fried’s situation. Here the lack of transparency and accountability in his business practices were open, leading to his downfall.

FTX Collapse: The Sunlight Principle and Disclosure Requirements For Investor Protection

The FTX collapse once again raises concerns about investor protection in the crypto industry. The SBF trial shows that one can successfully prosecute fraud. However, it still leaves investors with little recourse after the fact. That’s why some form of regulation is necessary to protect investors. Especially, those who use crypto exchanges, buy tokens, or use crypto intermediaries. 

The “sunlight principle”, which relies on transparency and disclosures, is the best way to regulate this immature industry. However, strict penalties must be it to ensure compliance. FTX’s downfall brings about by an article published by CoinDesk, which revealed the fraudulent activities happening behind the scenes. Binance decides to sell its holdings of FTX tokens which ultimately led to FTX’s bankruptcy. 

Although Sam Bankman Fried charges were for traditional fraud rather than crypto fraud, it is possible that regulations could prevent him from embezzling funds. However, it is essential to note that someone who believes they are uncatchable may still choose to engage in wrongful activities regardless of the laws and regulations in place.