When Sam Bankman-Fried heads to FCI Herlong, or whatever Bay Area medium security prison will soon house him, perhaps he’ll think long and hard about how Judge Lewis Kaplan formed an early impression of him as an uncommon thief. Throughout the entire case, right up until he dropped a 25-year prison sentence on the disgraced crypto wunderkind, Kaplan kept explaining his decision-making by drawing comparisons to a bank heist. 

To wit: When S.B.F. wanted to tell the jury that his Anthropic A.I. investment could return hundreds of millions of dollars to FTX, Kaplan scoffed at this proposed silver lining—equating it to a guy who robs the Federal Reserve only to return the money after winning the Powerball. When S.B.F.’s legal team discussed the involvement of FTX attorneys in his past behavior, the judge compared the situation to a bank robber who buys a new residence and then blames his oblivious real estate attorney. And during sentencing, Kaplan again treated Bankman-Fried like John Dillinger, refusing to go easy on him despite assurances that FTX customers would soon be made whole. Said Kaplan: “A thief who takes his loot to Las Vegas and successfully bets the stolen money is not entitled to a discount on the sentence.”   

All well and good, except, technically speaking, Bankman-Fried wasn’t convicted of being a thief. Rather, he owned a quasi-bank in FTX and is going to jail because of deception. He was found guilty of perpetrating a fraud, à la Elizabeth Holmes, who received a little over 11 years in prison after manipulating people into thinking her blood-testing company, Theranos, had achieved significant breakthroughs. Bankman-Fried, who similarly misled investors and customers, is now set to serve more than twice as much time.

These sorts of comparisons only go so far. Under the flag of effective altruism, S.B.F. took ungodly liberties with billions of dollars in customer funds. Holmes not only took advantage of people’s wallets, but also played god with their health. So will the S.B.F. sentence stand up? On appeal, Bankman-Fried’s attorneys will try to convince higher authorities that Kaplan, a 79-year-old Clinton appointee who continues to have an active legal career, really didn’t understand the ins and outs of S.B.F.’s crypto enterprise, denying him a fair trial by precluding evidence and testimony about the Anthropic investment, the input of FTX lawyers, the website’s terms of service, etcetera. 

S.B.F. shouldn’t be counted out here. As history shows, white-collar crooks tend to have a knack for turning the tables on appeal, both by dissecting the nuances of fraud (everybody lies!) and by poking holes in federal sentencing calculations by arguing that only actual losses count (who’s the victim?). As I wrote last month, S.B.F. attorney Marc Mukasey is almost certainly looking at the decision by the 3rd Circuit, which ruled back in 2022 that sentencing shouldn’t factor in intended financial harm. It’s only a matter of time before this makes its way to the Supreme Court, and Mukasey could even be the one to take it there. 

Nevertheless, it’s unlikely the 25-year sentence will get the heave-ho—especially considering the hefty amount of money that went missing and Bankman-Fried’s witness-stand fibbing (which probably goes a long way toward explaining why Kaplan formed such an early, negative impression of the defendant). At the end of the day, the judge took the discretion that was afforded to him, landing on a harsh but defensible punishment. Incidentally, it’s also a number that’s pretty darn close to what you’d expect for someone who actually makes off with bags of cash from a bank.

Other Theaters of the Crypto Wars

The Bankman-Fried sentencing wasn’t the only major development during a monumental week in the Biden administration’s legal war on crypto. While the incarceration of S.B.F. will be roundly cheered inside the Justice Department, a few other twists are poised to lay the groundwork for the next stage of prosecutions and enforcement actions. Among the most interesting is the years-long effort by S.E.C. chair Gary Gensler to enshrine in law the notion that cryptocurrencies are actually unregistered securities. The legal wrangling has yielded mixed results, but the government scored a colossal victory on March 27 when U.S. District Court Judge Katherine Polk Failla (a colleague of Kaplan’s in New York) permitted the S.E.C. to proceed in court against Coinbase, the largest exchange dedicated to facilitating U.S. crypto transactions.

What truly stands out about the Coinbase ruling (read here) is not just the determination that the $60 billion public company facilitated the buying and selling of “investment contracts,” a.k.a. securities, but also the recognition of the S.E.C.’s enforcement power to police crypto in the first place. Coinbase attempted to contest the S.E.C.’s jurisdiction by invoking the “major questions doctrine,” endorsed by the Supreme Court just two years ago. According to this doctrine, an agency can only regulate a fundamental sector of the economy with explicit congressional authorization. Coinbase argued that the S.E.C.’s expanded mandate requires a clear statement from federal lawmakers. Judge Failla rebuffed the argument, responding that the crypto industry doesn’t qualify as a significant part of the American economy. Furthermore, she noted that the S.E.C. isn’t asserting a radical expansion of its regulatory power, as it has a long track record of grappling with emerging technologies and related financial instruments within its existing authority. Failla rejected Coinbase’s due process arguments, too.

While this decision will undoubtedly face appellate scrutiny, it’s bound to embolden Gensler. And when his S.E.C. does crack down on those in the crypto sphere for flouting securities laws, the government will be seeking huge penalties, as evidenced by another bombshell dropped this past week.

For more than three years, perhaps the most discussed case in this realm has been the S.E.C.’s action against Ripple Labs, over the sale of its crypto token XRP. Last December, U.S. District Court Judge Analisa Torres delivered her summary judgment that most XRP transactions don’t constitute investment contract securities. Only Ripple’s XRP sales to institutional investors fell into that category. At the time, most viewed the decision as a huge blow to the S.E.C. However, on March 25, the government rolled with the punches by discussing the financial harm to those investors, seeking a staggering $876 million in disgorgement, nearly $200 million in prejudgment interest, and then an additional $991 million penalty to serve as a deterrent. 

The eye-watering, nearly $2 billion tab sent shockwaves through the crypto community. For some, it probably was a roller coaster of emotions. One day, they felt schadenfreude at Sam Bankman-Fried’s fate, only to bemoan their own predicament the next. Such is life on the wild economic frontier.