Sam Bankman-Fried in Longworth Building on Thursday, May 12, 2022. (Tom Williams/CQ Roll Call via AP Images)

The arrest and unsealed federal grand jury indictment this week of the tousled-headed, billionaire-crypto-man-baby Samuel Bankman-Fried is the beginning of the end.

No, it’s not the end for SBF, as he’s known. He’ll be okay. Eventually.

However, it is the beginning of the end for those who had hoped to ignore bitcoin, blockchain, tokens, NFTs, or whatever. As a friend replied to my elated email about the scandal: “One of my life goals is to die before I am forced to understand cryptocurrency.”

Alas. She will not achieve that lofty goal. I’ll explain crypto itself in a forthcoming piece. Let’s address the criminal indictment and the SEC complaint against the young man whose parents are, ironically, Stanford Law professors.

Start with the arrest of SBF and its related legal filings. 

  • Custody: On December 12, Bahamian law enforcement took SBF into custody at the request of the U.S. government, based on a sealed federal grand jury indictment.
  • SEC Complaint: On December 13, the Securities and Exchange Commission filed a civil complaint against SBF in the Southern District of New York. We can learn a lot of background from that filing, and I’m setting the facts out in chronological order, more or less, followed by the main allegations.
  • A Hedge Fund Is Born: In October 2017, SBF, then a 25-year-old MIT grad, and his friend Gary Wang founded a hedge fund called Alameda Research LLC, with SBF owning 90 percent and Wang the remainder. Organized under Delaware law, it operated in the U.S., the Bahamas, and Hong Kong.
  • Hedge Fund Control and Funding: SBF was the CEO of Alameda from its founding until October 2021, when his friends Caroline Ellison and Sam Trabucco became co-CEOs. Then in August 2022, Ellison became Alameda’s sole CEO. Despite the title change, even after October 2021, SBF “remained the ultimate decision maker in Alameda” and “directed investment and operational decisions, frequently communicated with Alameda employees, and had full access to Alameda’s records and databases.”
  • Borrowed Money, Volatile Assets at Alameda: Alameda borrowed to invest in crypto assets. Don’t worry about what the hell a crypto asset is. Just pretend it’s some highly volatile asset you’ve read about before, like Dutch tulips in the 1630s or ostrich feathers in the early 20th century, or toxic mortgage-linked securities in the early 21st century.
  • A Sibling Corporation Is Born: In May 2019, SBF, Wang, and Nishad Singh started a new business with SBF as the majority owner. This business let customers trade crypto assets with each other. Organized in Antigua and Barbuda as a limited corporation, it did business as or FTX.
  • FTX Control and Investors: From the time of FTX’s birth until SBF resigned as its head in November of 2022, SBF was the “ultimate decision-maker” at FTX. To fund this trading platform, SBF raised more than $1.8 billion from investors who purchased an equity stake in the corporation.
  • Risky Business at FTX: Customers of FTX could trade crypto assets (think tulips, ostrich plumes, and crappy investments) for fiat currency (meaning legal tender, such as dollars) and for other crypto assets. They could also engage in still riskier transactions involving lots of borrowed money.
  • Allegations by SEC: The SEC alleges that between 2019 and 2022, SBF defrauded the FTX investors (at the same time, he was defrauding the customers). Specifically, for years, he had been diverting FTX customer funds for his use and to support Alameda. The SEC detailed that SBF used customer assets to purchase luxury real estate, make venture investments, and to fund significant political donations. The SEC said he lied to prospective investors in FTX when he claimed that sophisticated systems protected customer assets and that Alameda was not given any special treatment. The SEC said he “provided Alameda with significant special treatment on the FTX platform, including virtually unlimited ‘line of credit’ funded by the platform’s customers.”
  • More Investor Fraud After the Crypto Crash: In May 2022, when crypto assets began to plummet, Alameda faced repayment demands from lenders. So, on top of the money SBF siphoned from FTX customer accounts, he allegedly “directed FTX to divert billions more in customer assets to Alameda to ensure that Alameda maintained its lending relationships and that money could continue to flow in from lenders and other investors.” It was only in November 2022 that this “brazen, multi-year scheme finally came to an end when FTX, Alameda, and their tangled web of affiliated entities filed for bankruptcy.”
  • Relief: Among other requests, the SEC seeks disgorgement of SBF’s ill-gotten gains and to bar him from participating in any securities business or “crypto asset securities” (something different from crypto assets, but don’t fret about that now). However, he’d be able to trade for his own personal account.
  • Unsealing of Indictment: On December 13, after the SEC complaint, the Department of Justice unsealed an eight-count indictment against SBF. The serious charges come with lengthy potential prison sentences. Here are the key allegations, organized by victims:
  • Customers of FTX: The grand jury charged SBF with wire fraud for taking FTX customer deposits and using those funds to pay debts and expenses for his hedge fund, Alameda, and to make investments. SBF was also charged with conspiring with unnamed others to perpetuate this fraud. Because some FTX customers were trading so-called swaps, layered onto the conspiracy to commit wire fraud was a conspiracy to commit commodities fraud.
  • Lenders to Alameda: The grand jury charged SBF with wire fraud for misleading Alameda’s lenders regarding the hedge fund’s financial condition. He was also charged with conspiring with unnamed others to defraud the lenders.
  • Investors in FTX: The grand jury charged SBF with conspiracy to commit securities fraud by agreeing with others to provide false and misleading information to the FTX investors regarding the company’s financial condition.
  • The Banking System: SBF and unnamed others allegedly engaged in a money-laundering conspiracy when moving FTX customer funds to Almeda through money transfers that were designed “to conceal and disguise the nature, the location, the source, the ownership, and the control of the proceeds of” unlawful activity.
  • Federal Election Commission and U.S. Voters: SBF allegedly conspired to defraud the United States with the aim of “impairing, obstructing, or impeding the lawful functions: of the Federal Election Commission.” He also allegedly conspired to violate campaign finance laws. The grand jury identified several examples, including exceeding legal limits for campaign donations.

Given these allegations, SBF is in legal peril. Yet, if history is a guide, this 30-year-old will walk out someday, not too far off in the future, a free man with decades left to rebuild his life.

Don’t believe me? Even after considering the sentencing commission guidelines, federal judges are required by statute to “avoid unwarranted sentence disparities among defendants with similar records who have been found guilty of similar conduct.” Here are some relevant comparisons.

In 2005, Bernie Ebbers, former CEO of WorldCom, was found guilty of defrauding investors out of more than $1 billion and began serving a 25-year sentence in 2006. Ebbers, who was very ill, was released in late 2019, shortly before his death.

After a mistrial, then a conviction, in what was the largest white-collar fraud of the time, involving at least $8.6 billion in losses, in 2010, Charles W. McCall, chairman of McKesson-HBOC, was sentenced to 10 years in prison. According to the Bureau of Prisons website, he was released after just six.

Last month, a judge sentenced Theranos founder Elizabeth Holmes to 11 years and three months in prison for a wire fraud and wire fraud conspiracy conviction involving $700 million in victim losses.

Life will not be over for SBF at 30. If he receives a 20-year sentence, he’ll be free at 50, and while rough, that’s not a death sentence. And as is likely, he’ll be out in more like 14 or 15 years, with plenty of time for repentance or starting a new business.

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Jennifer Taub is a law professor and author of Other People’s Houses (about the 2008 financial crisis) and Big Dirty Money. Follow Jennifer on Twitter @jentaub.