Sam Bankman-Fried’s No-Guilt Plea and What It Means for Investors

Sam Bankman-Fried’s No-Guilt Plea and What It Means for Investors

Sam Bankman-Fried’s No-Guilt Plea and What It Means for Investors

  • Sam Bankman-Fried’s plea of ​​not guilty may have been his only option, says Kevin O’Brien.
  • He added that the fate of the founder and attempts to repay creditors are two separate paths.
  • And creditors should check the SEC’s website for updates

Last Tuesday, Sam Bankman-Fried pleaded not guilty after his crypto exchange FTX filed for bankruptcy protection along with over 130 of its subsidiaries in November.

The move was contrary to what two of his associates did. Caroline Ellison, the CEO of Alameda, and Gary Wang, the exchange’s former chief technology officer and co-founder, both pleaded guilty to similar allegations last month. The Commodity Futures Trading Commission’s lawsuit alleged that both Ellison and Wang knowingly deceived the public under Bankman-Fried’s direction.

“The difference is simply this: Caroline and Gary Wang both have agreements with the government,” said Kevin O’Brien, trial attorney and partner at Ford O’Brien Landy LLP.

O’Brien, a former Assistant Attorney for the Justice Department, specializes in white collar crime, commercial and securities litigation. He can see how this case could unfold like chess pieces moving on a board.

“They made lawyers. They have very smart attorneys who have been proactive,” O’Brien said of Ellison and Wang’s move. “They went into the government and said we have information for you. But in return you have to make my clients a deal. And that’s probably what these two people got. They have reduced fees or a break if the conviction matters.”

Bankman-Fried made no such deal. Instead, he spoke freely to the public and media about the collapse of his exchange, claiming he had done nothing wrong. He’s paying the price for that now, and things aren’t looking good for the young founder, O’Brien said. But who knows, it might actually pay off, he added.

Pleading not guilty might be a smart strategy — in fact, it’s the only strategy O’Brien added.

“It’s a formality,” O’Brien said of Bankman-Fried’s request. “When you are charged, your first appearance in court, you don’t know what the charge is. You are presented with a piece of paper, an indictment, but you do not know the evidence.”

For O’Brien, it’s an indication that Bankman-Fried is keeping his options open. As the case develops, there are many dynamic factors that can steer it in any direction. This includes how strong the evidence is, how good the prosecutors are, and even the attitude of the judge. He could also make successful motions, and he will certainly make many pre-trial motions, O’Brien said.

If things don’t go Bankman-Fried’s way, he might plead guilty later, but might not fare as well if he rushed to cooperate early, O’Brien added.

If convicted, Bankman-Fried could theoretically face up to 115 years in prison. But that’s just the maximum for all counts, and he won’t get close to that, O’Brien said.

“He has a good lawyer. I know the firm, they are really good lawyers. So you probably prepare the way a lawyer would prepare for a complex business case,” O’Brien said. “They will look at the evidence, make initial decisions, find out where the government might have weaknesses and try to exploit them with motions.”

Where are the investors?

The amount of turmoil and crime in the crypto market doesn’t surprise O’Brien. It’s a sector that’s almost completely unregulated, with new players entering the space every day, making it ripe for fraud, he said.

Currently, crypto service providers are not required to register with the Securities and Exchange Commission (SEC) or file reports as digital assets are not yet classified as securities. They don’t have to do the hundred or more things that registered companies have to do in traditional securities markets, he said.

Investors may still be walking through a minefield. O’Brien believes the disruption for crypto isn’t over yet. After FTX’s demise, the SEC investigation could unearth more fraud cases and charges against other companies.

But Bankman-Fried’s pleading has little to do with what the outcome will be for investors who have lost money in the stock market, O’Brien noted. If anything, it’s a sideshow. The fate of the founder and attempts to repay creditors are two separate tracks. The former is involved in the criminal process, while the latter will be in the hands of liquidators, he said.

Whether victims will reclaim much, little, or nothing at all remains to be seen. It’s usually a long and slow process that can surpass the criminal process, he said.

There are so many potential victims that it may not be possible to give any class of investors a substantial return that comes close to what they lost, he said. It will be up to the judges to sort this out and there are various classifications that allow them to do so, he noted.

However, those implicated in the debacle should be ready to file a lawsuit when the time comes, he said. For those who had a significant stake, it would be helpful to have legal representation.

O’Brien added that the Security and Exchange Commission’s website is a good place to start, as it has a parallel case against FTX. Presumably they will be involved in the administration of the estate as equal trustees so that they have some knowledge. And as a responsible public entity, they will provide information through their website, he said.

As for investors undeterred by the crypto market, O’Brien recommends consulting with small law firms that have already moved into the space. This will help you know your rights and the risk you are taking when dealing with a crypto service provider.

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