Jury in Sam Bankman-Fried trial has reached a verdict, and not the one SBF would hope for. The verdict is that SBF is found guilty of all seven counts of charges. My initial reaction to the verdict is mixed. While everything seemed to suggest SBF wasn't going to get away from his fraudulent actions when running FTX and Alameda Research, I also feel sorry for him. Things could have been a lot different. He could have been a very successful entrepreneur in crypto space or elsewhere. If not a billionaire, he could have still be a millionaire. But the reality is, there was fraud, there was crime, funds were stolen. Justice has been served. Is it complete justice though? To me it seems there are double standards, there are system standards, and lack of them.
SBF is going to prison, while he still has to face other accusations in a separate trial. I have no doubt SBF is guilty on FTX customers losing their funds. The crimes seem to go beyond simple negligence. There are many evidences of obvious scam and fraud. The two main ones are sufficient to say, SBF wasn't playing a fair game. One is that controlling of two companies that had direct conflict of interest, FTX as an exchange and Alameda Research as a trading firm. Separately, the two could have been successful on their own. But the route they chose put customers at disadvantage, and their funds at risk. How was it even possible to run the two. Yes, SBF wasn't officially the CEO of Alameda Research when he was running FTX, but he still had control over it, he still had controlling stakes in the company.
The second obvious terrible move by SBF and associates was hiring an attorney with shady past for legal compliance. The lawyer who was in charge of compliance once worked for a online casino company whose owner cheated users of the platform by activating a "God mode" that gave ability to see the cards of other players. That suggests that SBF didn't care about compliance, but rather was interested in someone who wouldn't hesitate to help hiding illegal activities. In all of this drama, I don't believe SBF is the only guilty person. There were others too, including the same attorney who was in charge of compliance. The attorney and other executives chose to cooperate with the authorities, plead guilty, and entered plea deals in exchange for cooperation, sharing evidence, and testifying against SBF. It is not clear what their penalty will be. I would guess much much less then what SBF will be getting.
This fraud scheme wasn't done by one person. SBF may just be the evil genius. However, this fraud was too complicated for one person to accomplish. It is clear that others were involved as well. In my opinion, all of these executives who were aware of the illegal actions and wrongdoing, participated in them, and/or endorse them are equally guilty. Any one of them could have put a stop to these actions at any point. Nobody did. What were the lawyers or legal department looking at. Where were the accountants? I am just assuming a company operating in billions of dollars would have teams in place for legal matters, finances, accounting, etc. Are any of them responsible for any of the actions done by FTX? I guess it depends if how much they knew what was going on. I am not saying everybody involved in FTX were guilty. Not at all. Only the ones who actively participated in these illegal actions, and benefitted financially. It seems like SBF will end up taking all the blame and face the consequences.
I understand in the legal system turning culprits against each other is one of the common ways to successfully prosecute somebody higher up in the chain. This also lets those who cooperate and testify against others get away for the crimes they have committed. The fraud at the scale of FTX couldn't have been accomplished by one person. Or could it?
Interestingly, SEC has been going after crypto projects, companies, exchanges, and individuals in recent years. That still is the case. Their motto has been - "we want to make sure consumers and investors are protected." But all they have done was sue, sue, and sue. Many of these lawsuits ending up failing, and they find themselves to be in the wrong. But when it comes to actual fraud, actual potential of investors losing their funds, SEC was nowhere to be found. How is it nobody in SEC raised a concern about FTX and Alameda Research being run by the same group of people. Even without the presence of any illegal activities or any signs of, just the fact these two entities were direct conflict should have been of big concern. SEC only stepped in when people lost funds, company declared bankrupt, everything went crazy. Taking legal actions after the fact, once all money is gone, everything is ruined is not proactive measures. This doesn't help SEC's case at all, in my opinion. Or even other authorities as well. What were authorities in Bahamas doing?
There are also double standards. When 2008 financial crisis happened, many banks, insurance companies, hedge funds went bankrupt. That affected many people. People lost their money. Investors lost their money. I am talking about money directly involved with these financial entities. Many more got hurt with the overall global finance and economy collapsing. How many of the CEOs and executives of these banks, insurance companies, and financial services companies were held responsible for their actions? Only one executive from Credit Suisse has received a jail time as a result of the financial crisis of 2007-2008. That conviction was for mismarking bond prices to hide losses, and was sentenced for 30 months in prison. No CEOs or executives were held accountable. Banks were bailed out, and executives received bonuses. How is this different than FTX fiasco. The thing with FTX is probably nothing compared to the scale of fraud done that lead to the global economic collapse.
Holding banks and companies accountable is one side of the story. Doesn't happen in traditional financial world. What happens is banks get bailed out. Just recently when three banks were collapsing, US Treasury and Fed did something they haven't done before, created an unlimited credit line to make sure these bank going down doesn't create a domino affect. They basically guaranteed all depositors their money back beyond FDIC insurance. Nobody lost money. That is nice. Where was this help when FTX or other crypto companies started failing and went on filing bankruptcies. Compared to the amounts of money they are willing to cover in the case of banks, FTX money is not too bad. They could have easily covered those as well. Especially now we know a lot of funds were successfully recovered. They could just fill the gap and let all people who lost money with FTX be compensated fully. I am not saying that what they should do with all situations. I am just pointing out the double standards.
Of course the system will try to protect itself. Nothing wrong with that. The problem is when it doesn't protect who it actually should be protecting, the people. Otherwise it becomes one big collusion and cooperations to enrich themselves among small group of elites. System needs tweaks or should be upgraded so it can meet the contemporary standards and needs. I hope with this verdict we close the chapter of FTX in crypto books, and enter a brighter crypto future, the one where decentralized systems provide actual solutions and benefit people all around the world. Crypto bull run wouldn't hurt in the meantime.