Sam Bankman-Fried’s Crypto Scam Is Business as Usual

It looked like a set piece straight out of Law and Order: Just a few weeks after he made his surreal star turn before a New York Times DealBook crowd, disgraced crypto mogul Sam Bankman-Fried was under arrest in the Bahamas, awaiting extradition to the United States on eight charges alleging rampant fraud at his now-shuttered currency exchange FTX. And only a month after a damning expose from the crypto site CoinDesk triggered a massive selloff at FTX, the newly anointed dark lord of crypto was behind bars. And as a pointed legal addendum, the financial industry’s lead regulatory agencies, the Securities and Exchange Commission and the Commodity Futures Trading Commission, have each launched separate complaints against SBF, as the 30-year-old former billionaire was familiarly known.

But as the legal phase of the SBF saga unspools in the months ahead, it may more closely resemble the convoluted heist depicted in American Hustle—a burgeoning array of charges and counter-charges pitting a host of self-interested players against one another in a procedural Grand Guignol with an uncertain outcome. And the hastily convened set of legal actions that followed are a conspicuous exercise in public relations on the part of a legal and regulatory establishment that permitted the flagrant pattern of fraud and misrepresentation nested in the very business model of the crypto industry to fester unattended as the FTX scam grew into one of the largest cases of investor fraud in recent history.

Given the complexion of recent financial history in these United States, that’s saying quite a lot. It’s hard for anyone who witnessed the epic collapse of the financial system in 2008—and the distinctly anemic legal and regulatory response to that crisis—to see the indictment of SBF as any sort of dramatic course correction. “The coverage of these things tends to be celebratory,” says Ankush Khardori, a former Justice Department prosecutor who specialized in white-collar crime. “But this is the start of it—not anything approaching the end.”

For starters, he says, demonstrating fraud in a criminal trial involves a high standard of proof. “In terms of the strength of the government case, the fundamentals are shaky here. Unless there was a concerted investigation—if this investigation was underway in early November right when the CoinDesk story broke—there’s no way they have strong cooperating witnesses, or communications proving criminal intent…. We do not see any disclosure that the representations cited in the complaint were intentionally made to mislead. The prosecutors may have all that, and we have public indications of some of the crucial elements, but we still need to determine the degree to which they were false. For a criminal case, there has to be contemporaneous intent, not just a misrepresentation by your own inadvertence, hypothetically, if you forgot to disclose something crucial. That doesn’t meet criminal standards.”

To try to reach those standards, prosecutors have cited language in FTX’s terms of service, but such language is littered with ambiguous wording, expressly to shield financial operators from potential criminal liability. “The representations in these complaints are kind of a hodgepodge, but the rubber is really going to start to hit the road quickly,” Khardori says. “Prosecutors are going to start asking for more detail about representations SBF has made. The government’s indictment contains none, which is par for the course in a quick indictment.”