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The government’s performance in the case against former FTX CEO Sam Bankman-Fried.
Source: SDNY
As Sam Bankman-Fried prepares to face sentencing next month for pleading guilty to criminal fraud linked to the epic collapse of FTX in 2022, former clients of the crypto exchange have reason to believe that he is actually Can get your money back.
Bankman-Fried, who could spend the rest of her life behind bars, was found guilty in November of seven criminal counts after nearly $10 billion of customer funds disappeared from her company. Some of that money was spent to pay for Bankman-Fried’s lavish lifestyle, but much of it was spent in other investments, the value of which has recently increased dramatically.
Lawyers representing FTX’s bankruptcy estate told a judge in Delaware last week that they expect to fully pay customers and creditors with legitimate claims. Bankruptcy attorney Andrew Dietderichs, who works with FTX’s new leadership team, said there is “still a lot of work and risk” in getting all the money back to customers, but the team has “a strategy to achieve it.”
This is a welcome development for the thousands of customers (reportedly up to a million) who collectively lost billions of dollars in the collapse of FTX 15 months ago, when the crypto exchange went bankrupt in a matter of days. Given the lightly regulated and unsecured nature of FTX – and the crypto industry at large – those customers faced the real possibility that most of their money had evaporated. Many failed hedge funds and lenders lost almost everything during the 2022 crypto winter.
Bankman-Fried never believed that his company was in such bad shape.
Even as regulators and federal prosecutors uncovered evidence that the 31-year-old entrepreneur and his top lieutenants were stealing billions of dollars from customer wallets for years, Bankman-Fried insisted that all the money would still somehow Was accessible.
“FTX US remains fully solvent,” Bankman-Fried wrote in a Substack post on January 12, 2023, while he was under house arrest at his parents’ home in Palo Alto, California. “Should be able to return customers’ funds.”
In some ways, what he said seems to be proving true.
Joseph Bankman and Barbara Fried arrive for the trial of their son, former FTX chief executive Sam Bankman-Fried, who faces fraud charges over the collapse of the bankrupt cryptocurrency exchange in federal court in New York City, US, on October 26, 2023. Is. ,
Brendan McDiarmid | reuters
For months, FTX’s new CEO, John Ray III, and his team of restructuring advisors have been repatriating cash, luxury assets and crypto, as well as locating missing assets. They’ve already collected more than $7 billion, and that doesn’t include valuables like the $26 million in gifts and assets given to Bankman-Fried’s parents or the $700 million handed over to K5 Global and founder Michael Keaves. Who invested FTX cash in companies. Like SpaceX. Some of those investments have seen huge increases in value.
FTX was in talks with bidders about a possible reboot of the company, but those efforts were canceled last month.
Braden Perry, who was once senior trial counsel for FTX’s only official US regulator, the Commodity Futures Trading Commission, told CNBC that the decision to pay users in full came when ,Abandoning efforts to relaunch the FTX crypto exchange in favor of “focusing on liquidating assets to make customers whole.”
Getting real money back into the hands of customers still remains a challenge. Although much value has been recovered and more is to come, dividing up large amounts of cash in a bankruptcy is a complex process, especially when so much of the money is held in non-traditional and illiquid assets.
Even Ray was skeptical at the beginning of the process, saying in late 2022, “At the end of the day, we’re not going to be able to recoup all the losses here.”
‘Sam coins’ fly high
What Ray wasn’t counting on was a huge market surge. When he made these comments, crypto was stuck in a bear market Bitcoin Trading at around $16,000. It is now above $47,000.
In September, the bankruptcy team released a status report showing that FTX had digital assets worth $3.4 billion, of which more than $1.1 billion was in proceeds. solana Investment.
Solana fits into the category of so-called “SAM coins,” a group that also includes Serum, a token created and promoted by FTX and fellow hedge fund Alameda Research. After the dust settled from the FTX bankruptcy, Solana’s price saw a massive rise, and the rally continued following the September report. Since the end of that month, it has increased fivefold.
Meanwhile, FTX’s Bitcoin reserves, which were worth $560 million at the time of the September report, are worth north of $1 billion today.
Bankman-Fried’s investments were not limited to crypto. They also used client money to back startups like Anthropic, an artificial intelligence company founded by ex-OpenAI employees. Ahead of the generative AI boom, FTX invested $500 million in Anthropic in 2021. Anthropic’s valuation could reach $18 billion in December 2023, which would value FTX’s roughly 8% stake at about $1.4 billion.
During Bankman-Fried’s criminal trial in New York, Judge Lewis Kaplan rejected the defense’s request to be allowed to say that FTX’s investment in Anthropic was a smart bet. The bankruptcy estate of FTX is considering selling its Anthropic stake, according to a court filing this month.
Sam Bankman-Fried stands as the Chief reads the verdict in court.
Artist: Elizabeth Williams
In his biography “Going Infinite” on Bankman-Fried, Michael Lewis said that an investor interested in bidding for the venture portfolio had told him that “If it had been sold sensibly, it would have fetched at least $2″. Should go into billions.” Lewis, who published his book late last year, wrote that, based on his back-of-the-envelope math, the $7.3 billion that Ray’s team came up with included a serum, some big clawbacks, and Other venture investments were not included. Appreciated in value.
According to the judge’s decision, being made whole for FTX customers means they will receive cash equal to the value of their crypto in November 2022. In other words, they are not seeing any benefit in investing in FTX or being awarded virtual coins. This will allow them to cash out at higher valuations.
Still, some investors have found a way to participate in FTX’s ongoing journey. The market for FTX IOUs brightened last year as it became clear that bankruptcy assets were piecing together an attractive portfolio. One financial firm, which had initially lost about $100 million, sold its FTX debt in the new secondary market for 6 cents on the dollar, due to concerns that it might never get a better deal. By December, those claims were running at more than 70 cents on the dollar.
If the clients are ultimately made whole, it could play a big role in Bankman-Fried’s appeal, possibly after her sentencing, which is scheduled for March 28 in Brooklyn. Perry said it could also affect how the judge handles sentencing in the first place.
Perry said, “Under federal sentencing guidelines, and even with no monetary damages, the SBF should receive at least the minimum punishment based on their base level of crime, number of victims, sophistication of means, and leadership role.” Faces at least 70 months in prison.”
Perry said the scale of damage originally anticipated would suggest a life expectancy of 30 years.
Renato Mariotti, a former prosecutor in the U.S. Justice Department’s Securities and Commodities Fraud Section, told CNBC that judges typically consider the amount of restitution to be paid to victims when sentencing.
“If the victim is recovered, that’s a big plus for the defendant,” Mariotti said. However, he said the extent of Bankman-Fried’s fraud coupled with perjury and violation of bond conditions could limit the reduction.
“I generally advise clients to pay restitution before sentencing if possible,” Mariotti said.
Watch: Former SEC charee discusses Bankman-Fried guilty verdict
