Why the Feds Chose Right Now to Bust Crypto’s Golden Boy

Yesterday, Sam Bankman-Fried (known as SBF), the former CEO of the collapsed cryptocurrency giant FTX, was arrested in the Bahamas and is being held in Bahamian jail pending his extradition to the United States. In an indictment unsealed this morning, SBF was charged with mail and wire fraud, money laundering, and other crimes related to a scheme measured in the billions of dollars. If convicted on all charges, he faces a sentence along the same lines as the 150 years imposed on the notorious Ponzi schemer Bernie Madoff.

For weeks, the Justice Department did not have SBF arrested in the Bahamas, despite the widespread public clamor for him to be immediately jailed. There are three reasons why the DOJ waited.

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1. DOJ Allowed SBF To Keep Talking And Implicate Himself

The first rule of being under investigation by law enforcement is “shut up.” From the moment that FTX melted down, SBF violated Rule Number One daily. He went on the record in tweets. He was interviewed by The New York Times. His statements drove the bankruptcy attorneys representing FTX to publicly state that he was harming the company’s chances to emerge from bankruptcy.

When he spoke, SBF did enormous harm to himself and especially to his credibility. Questioned by Vox about prior statements regarding his philanthropy, SBF responded, “Man, all the dumb shit I said, It’s not true, not really.” When asked about “sketchy stuff” that he had done, he responded, “Each individual decision seemed fine and I didn’t realize how big it was until the end.” When asked about prior statements that he wanted “good regulations,” he admitted that those statements were “just PR.” Even worse, he went on, “Fuck regulators. They make everything worse. They don’t protect customers at all.” If SBF goes to trial, prosecutors will be able to admit each of those statements against him, even if he does not take the stand.

2. DOJ Likely Had an Arrest Warrant, Should SBF Have Returned to the U.S.

Although the DOJ was content to allow SBF to do damage to himself while he was holed up in the Bahamas, they almost certainly were prepared to arrest him—based upon a sealed (secret) complaint or indictment—if he had been so foolish as to return to the United States.

SBF would have been taken into custody had he landed at any U.S. airport, or arrived at any U.S. port. If SBF had been arrested on U.S. soil, the DOJ would know that they would have the latitude to arrest immediately and follow up with a superseding indictment later.

3. Preparing an Indictment That Satisfies the Extradition Treaty With the Bahamas Required Great Care

Having SBF arrested in the Bahamas required more care than an arrest on U.S. soil. The United States has an extradition treaty with the Bahamas. Under that treaty, an individual can be arrested in the Bahamas and returned to the United States for “an offense…if it is punishable under the laws in both Contracting States by deprivation of liberty for a period of more than one year or by a more severe penalty.” That meant that the DOJ had to be certain that any offense that SBF faced was a crime under the laws of the Bahamas, as well as the laws of the United States.

In addition, the indictment used to get SBF extradited from the Bahamas limits the crimes for which he can eventually be tried. “A person extradited under this Treaty may only be detained, tried, or punished in the Requesting State for the offense for which extradition was granted…” So, the DOJ will not have the ability to supersede and charge SBF with different crimes, if additional investigation finds SBF committed those crimes.

For all of these reasons, the DOJ was content to use the weeks since FTX failed to develop its case before seeking extradition.

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So, Why Arrest SBF Now, When He Was Just About to Testify Under Oath Before Congress?

Although I cannot be certain, pattern recognition based on 25+ years in criminal justice (including my time as a federal prosecutor) tells me that the DOJ does not like to be embarrassed. SBF was scheduled to testify, remotely, before Congress tomorrow. Having SBF testify under oath as a free man in the Bahamas—apparently beyond the reach of the U.S. government—threatened to humiliate the DOJ.

My strong suspicion is that when the DOJ learned that SBF would testify on December 13, it set a December 12 deadline to deliver an indictment to the Bahamas’ attorney general, so as to avoid the optical embarrassment of SBF testifying to Congress from a mansion in a tropical paradise.

As for SBF, he’s got nothing but bad options laid out before him.

1. If SBF Fights Extradition, He Will Be Jailed In an Awful Bahamian Prison Until He Is Sent to the U.S.

Under the U.S.-Bahamas treaty, SBF can fight extradition in the Bahamas courts. This process can take months or years. For example, Julian Assange (of Wikileaks fame/infamy) has been fighting extradition from the U.K. to the U.S. for more than five years. But, if he fights extradition, SBF will be incarcerated in the Bahamas prison the entire time.

When people think of the Bahamas, they think of a tropical paradise, with white sand beaches, soft breezes, and pina coladas. Bahamas jail, however, is far from idyllic. According to the most recent report by the U.S. Department of State:

“Conditions at the government’s only prison, the Bahamas Department of Correctional Services (BDCS) facility commonly known as Fox Hill Prison, were harsh due to overcrowding, poor nutrition, inadequate sanitation, and inadequate medical care. Conditions at the Carmichael Road Detention Centre for migrants were adequate for short-term detention only.”

2. If SBF Insists on a Trial, He Will Spend More Than a Year in Hellish Confinement in a New York City Detention Center

SBF has been indicted by the United States Attorney’s Office for the Southern District of New York, which sits in Manhattan. If SBF elects to go to trial, he will be held in pre-trial detention in one of two awful jails: either the Metropolitan Correction Center (Manhattan) or the Metropolitan Detention Center (Brooklyn).

I previously detailed the hellish nature of MDC Brooklyn when Ghislaine Maxwell was held there. In my decades in criminal justice (as a prosecutor and defense counsel), I have found my clients would rather spend time in New York’s notorious Attica prison than serve in MCC Manhattan.

3. If SBF Pleads Guilty, He Will Be Sentenced to Considerable Time (But Might Get a Break Under the First Step Act)

The Federal Sentencing Guidelines—which set a recommended (but not mandatory) sentence—for the fraud and money laundering offenses that SBF faces are driven primarily by the amount of the loss. Any loss over $550 million places a defendant at the top of the chart, and SBF stands accused of defrauding investors of billions of dollars. When combined with likely adjustments for “more than minimal planning,” “more than 25 victims,” acting as an “organizer or leader” of the criminal enterprise, the use of “sophisticated means” and conducting a criminal enterprise from overseas, the guidelines offense level for SBF will likely be far above 43 points.

But, 43 is the maximum on the scale. At this level, the only Guidelines sentence is “life.”

Because none of the crimes that SBF is accused of committing carry a maximum sentence of life, but rather terms of up to 30 years, he will be sentenced to a specific number of years. That was small comfort to Bernie Madoff, who was sentenced to 150 years for his fraud. If SBF pled guilty, he would run the risk of a similar sentence.

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On the other hand, many federal judges have been loath to impose the harsh sentences called for by the Sentencing Guidelines on white-collar criminals. For example, the disgraced ex-Theranos CEO Elizabeth Holmes faced a Guidelines range of 80 years, but the Court imposed a sentence of only 12 years. SBF might meet with similar leniency, particularly if he pleads guilty and shows “acceptance of responsibility.”

SBF will also benefit from the First Step Act, the sentencing reform enacted under former President Donald Trump. Under the First Step Act, non-violent offenders are entitled to good time credits that cut their sentences in half, so long as they remain out of trouble in prison. So, even if SBF were sentenced to 40 years, he would likely emerge from prison in 20 years, before he turned 50.

Regardless, December 11, 2022 is likely to be the last night of freedom for SBF for a very long time.

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