The huge story is SBF was sentenced to 25 years in federal prison for his role in the collapse of his crypto exchange, FTX.
Some thoughts:
The 25-year sentence is the midpoint of my prediction of 20-30 years, and and his political donations were of no avail, as I wrote:
I think he’ll likely get 20-30 years. Despite his Democratic donations, there is nothing to gain by showing favoritism, as his image is tarnished, and showing toughness on crime is always popular or the safe bet.
25 years is the midpoint between the prosecution’s request of 50 years and defense’s request of 5-6 years. This means he will be 52 or so by the time he is free and clear. So unlike Madoff or Ross Ulbricht, he does have his eventual freedom to look forward to. Unfortunately, this means we can expect his comeback and redemption ark, which will certainty get media attention. This is how a justice system, in theory, is supposed to work: even the most contemptible of individuals should be allowed the opportunity to be rehabilitated–or having otherwise shown contrition for their actions or repaid their debts to society–be absolved of guilt and allowed to reenter society.
This was a very fair sentence. Not too harsh or too lenient, and commensurate with other large-scale white collar frauds. Jeffery Skilling of Enron received 24 years. Ken Lay faced up to 45 years, but died before he could be sentenced. Bernie Ebbers, the CEO of the $11 billion WorldCom fraud, was sentenced to 25 years, but released early on compassionate release and died soon after. Elizabeth Holmes got 11 years for the billion-dollar Theranos fraud.
Further throwing a wrench in the favoritism narrative, despite no political donations and defrauding wealthy, well-connected people to the tune of hundreds of millions of dollars, Ms. Holmes got a relatively light sentence. By comparison, SBF, whose victims tended to be average people (and some wealthy celebrities like Tom Brady) got a much harsher sentence, and this was despite his connections and making his victims whole (albeit at 2022 prices).
This shows how contrary to popular wisdom, ‘stealing from the poor’ is possibly worse than ‘stealing from the rich’. Poor victims are better at pulling the heart strings of juries and judges, such as heart-wrenching and anger-inducing stories of ordinary people losing their life savings, compared to rich people who are better-able to withstand the loss and whose losses are perceived as more of a ‘bad investment’ or a ‘failure of due diligence’ than being scammed. The Madoff and Theranos frauds were allowed to run many years until charges were filed, and after all warnings and whistleblowers ignored (Madoff was only arrested after his sons turned him in after confessing the fraud, not due to the work of regulators or investigators). If protecting rich investors is so important, why were the warning signs ignored by regulators for so long, until after the money was gone?
Contrary to concerns he would get special treatment for his political donations and connections, he got no favoritism, as I correctly predicted. Some people on Twitter thought he got off easy; no one who gets a 25-year sentence in federal prison, which means no parole, breaths a sigh of relief. This represents half to 2/5 of SBF’s remaining adult life behind bars. If ‘only’ 25 years is an example of him leveraging his connections to evade justice, I would say he didn’t get his money’s worth or we have different conceptions of the definition of justice.
SBF will not be destitute after release. He not only has his family’s money, but also opportunities await him, either in finance or consulting of some sort. The obvious question is, “Why would anyone ever want to do business with someone who is so disgraced?” The answer is, he brings people and money together. His name recognition is valuable in its own right for its ability to draw media attention and hence is free advertising.
As he will be sentenced to federal prison, there is no parole, which means he will have to serve at least 85% of his time. Early release from federal prison is rare, usually for medical reasons. Having already served a year in jail during his trial and pre-sentencing, plus the possibly of a halfway house in the year leading up to his release, he may only have to spend 18-19 years in actual federal prison, likely in a low-security prison. But, still, despite these reduction’s, he still serving 75-80% of his time. No parole and tougher sentencing means lots of time behind bars, unlike in the ’80s when the likes of Barry Minkow, Ivan Boesky and Michael Milliken served short stints.
He has to pay a fine of $11 billion, but this likely the least of his concerns. It’s not like he can ever come up with that much money, so for all practical purposes it is a meaningless number.
Many people online hoped he would get even more years, but again, a justice system should offer some hope of rehabilitation and redemption, even for awful people.
A lot of the anger should go to CZ for precipitating the collapse of FTX, by tweeting that he would sell FTX’s native token, FTT, which triggered a run on FTX as customers withdrew their assets en masse in panic. It’s possible FTX had enough capital to keep running for a long time, even if it had a shortfall to satisfy every customer withdrawal. Bitcoin bottomed at $16,000 in Jan 2023, three months after FTX failed. But had FTX not collapsed, Bitcoin would have probably bottomed sooner, and the subsequent recovery could have shored up FTX’s finances sufficiently to continue running at an account deficit and satisfying routine withdrawals. It’s impossible to say for sure if FTX could have survived, but no doubt had CZ not made those tweets the situation would be different today.
FTX’s bankruptcy may have helped the price of Bitcoin in 2023-2024. Although bad in the short-term, exchange hacks and insolvencies are good in the long-term for the price of crypto by taking coins out of circulation. Insolvencies leave billions of dollars worth of crypto in limbo. On the other hand, individuals who wish to buy crypto simply deposit money to an exchange that does work, so it’s a net-positive. Hackers are typically unable to sell their loot on liquid exchanges, and so must use dark markets or the coins sit dormant in wallets forever.
FTX shutting down in November 2022, which at the time was the second-largest crypto exchange in the world, meant that as the price of Bitcoin began to rise by Jan 2023, such coins could not have been sold on the way up, which could have depressed prices. It may not be a coincidence that the 2014 insolvency of Mt Gox (which also involved a major undisclosed hack) and the 2016 Bitfinex hack of 119,754 Bitcoin worth at the time $70 million, preceded one of the biggest rallies ever in 2017 when Bitcoin went up 20x that year alone.