Will SBF Go to Jail for FTX Collapse? Remember MF Global?

Legion are the howls for justice emanating from the cryptoverse demanding criminal charges against Sam Bankman-Fried, the former middle earth champion of crypto now descended to Gollum status. But will he go to jail or even be charged?

Not if recent history is any indication.

In 2011, you might remember a derivatives brokerage firm called MF Global that collapsed amid a redemption rush. The CEO of the company, Goldman Sachs alumnus John Corzine turned senator, had apparently failed to prevent the raiding of customer accounts to try and stem the flow of an over leveraged cash hemmorhage triggered by misplaced bets on$6.3 billion in European government bonds.

He was never charged, nor was anyone charged, with any wrong-doing. The global media syndicate immediately closed ranks around the former senator, and in language that sounds unctuously familiar, categorized the failure as one of regulation, not of management malfeasance.

According to the Wikipedia page dedicated to the disaster, “On October 31, 2011, MF Global executives admitted that transfer of $700 million from customer accounts to the broker-dealer and a loan of $175 million in customer funds to MF Global’s U.K. subsidiary to cover (or mask) liquidity shortfalls at the company occurred on October 28, 2011.”

Does that sound similar to FTX, Alameda and Sam Bankman-Fried?

Obviously yes, but on a somewhat smaller scale.

I remember expecting charges every day to be announced against the CEO and his immediate C-suite, or at the very least some scape goat to paraded out to assuage the public outrage.

But no such action from either the Department of Justice or the SEC materialized, and within 6 months, the scandal had been consigned to the swirling fog of news cycle history.

The total hit to investors?

Surprisingly, 92 percent of misappropriated funds were recovered and returned to investors. Civil suits against Corzine and company treasurer Edith O’Brien were eventually settled, and the government fined the company $100 million. It is unlikely that was paid, as the company was liquidated in 2013.

The Federal Bureau of Investigation (FBI), the Securities & Exchange Commission and a congressional committee all launched investigations into the bankruptcy, which at the time was the 8th largest in US history, but no charges were ever filed.

Bankman-Fried’s Prepaid Get-Out-of-Jail-Free Card

At this point we are all conversant with the rather outsized donations SBF had apparently made to the democratic  party to the tune of at least $50 million. SBF’s mother Linda Fried, a politically connected law prof at Stanford University, was the head of Mind the Gap, which was, as told Vox.com,  a “pro-bono donor advisor to people who are interested in evidence-driven decision making.” They are thought to have raised tens of millions of dollars for democratic candidates since 2018, though are not a reporting political action committee so the numbers are based on news reports.

His father, Joseph Bankman, is also a well-connected law professor at Stanford.  It is believed that he was involved in the engineering of the corporate structures of the FTX group of companies, that number of 100 worldwide. Ironically, Bankman is a specialist in helping governments achieve higher tax capture from corporate entities.

So to say that SBF is safely inside the tent of elite political interests, as was Jon Corzine as former senator and Governor of the State of New Jersey, is a given.

So back to the main question; will he be charged? What do you think?

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
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