FTX founder and former CEO Sam Bankman-Fried should be “very concerned about prison time” after the collapse of his crypto empire, a former US federal prosecutor has said.
Speaking in an interview with CNBC, Renato Mariotti, a former federal prosecutor and attorney who has represented clients in cases related to dealings in financial derivatives, made it clear that the FTX case to him looks like “a chargeable fraud case.” Mariotti stated,
“If I represented Mr. Bankman-Fried, I would tell him he should be very concerned about prison time. That it should be an overriding concern for him,”
According to Mariotti, fraud is a criminal offense that can put people in prison for life. And in the FTX case, the central question to determine whether fraud has happened will be whether Bankman-Fried misled customers to believe their funds were available, while, in fact, it was used for other purposes, such as collateral for loans.
“The argument would be that Alameda was tricking these people into getting their money so they could use it to prop up a different business,” Mariotti said. He added that prosecutors could argue FTX violated its fiduciary duty by using customer funds for other purposes, such as taking positions in FTT, an exchange token issued by FTX.
Three legal threats in the US
According to Richard Levin, a partner at law firm Nelson Mullins Riley & Scarborough, Bankman-Fried could potentially face three different legal threats in the US.
The first of Bankman-Frieds legal threats would be criminal action from the US Justice Department for potential “criminal violations of securities laws, bank fraud laws, and wire fraud laws,” Levin explained.
Second, Bankman-Fried could also face civil enforcement action. According to Levin, this could for example, be brought by regulators such as the SEC or CFTC, as well as by various state-level regulators.
Third, Levin pointed out that potential class action suits also remain a threat for the FTX founder.
In other words, “there are multiple levels of potential exposure for […] the executives involved with FTX,” Levin said.
Bankman-Fried: “Not what I’m focusing on”
The question of whether fraud was committed at FTX was asked directly to Sam Bankman-Fried during his highly publicized interview with CNBC’s Andrew Ross Sorkin at the DealBook Summit. In his answer, the former FTX boss appeared unconcerned about criminal liability.
“I don’t think that — obviously, I don’t personally think that I have — I think the real answer is it’s not — it sounds weird to say it, but I think the real answer is it’s not what I’m focusing on. It’s — there’s going to be a time and a place for me to think about myself and my own future. But I don’t think this is it,” Bankman-Fried told Sorkin.
He added that he has never tried to commit fraud and stressed that FTX was a real business.
“I didn’t ever try to commit fraud on anyone, I saw it as a thriving business, and I was shocked by what happened this month,” Bankman-Fried said.