Sam Bankman-Fried’s not guilty plea to several federal fraud charges was largely anticipated and something a few legal experts suggested was a tactical response.
The former CEO of crypto exchange FTX, whose company collapsed in November, made the plea in Federal District Court in New York.
It’s very common in the federal criminal justice system for defendants to plead not guilty at their initial appearance, Mary Beth Buchanan, a former U.S. attorney now advising blockchain companies, said to TechCrunch.
The expedited timeline of FTX’s collapse and the legal actions against those involved was unexpected and unprecedented.
“Personally, and judging only from what is publicly known, I think the chances of a plea bargain at the outset of the case are very slim.” AnChain.AI's Michael Fasanello
In less than two months, Bankman-Fried faced eight federal criminal charges, while others close to him — including FTX co-founder and former CTO Gary Wang and Alameda Research CEO Caroline Ellison — pleaded guilty to multiple charges and accepted plea agreements.
But Bankman-Fried pleaded not guilty “because he had the absolute right to do so,” Anthony Sabino, a professor of law at The Peter J. Tobin College of Business at St. John’s University, said to TechCrunch. “And it was the smart play. Keep your options open. Do not give the government an edge. Wait it out. A deal can always be made later.”
Michael Fasanello, crypto compliance officer at AnChain.AI, agreed. “The initial plea of ‘not guilty’ is really just a formality of process and recognition of the charges by the defendant.”
By pleading not guilty, it gives Bankman-Fried more room to try and strike a deal with prosecutors, if that’s something he and his lawyers want, Sabino noted.
Lewis Kaplan, the senior judge of the U.S. District Court for the Southern District of New York, set Bankman-Fried’s next trial date for October 2. But not everyone expects that date to be set in stone or is confident that Bankman-Fried will hold his plea until then.
“This is not a case where you want to either plead ‘not guilty’ and wage all-out war or plead ‘guilty’ and throw yourself on the mercy of the court,” Fasanello said. “The middle ground is the sweet spot, here.”
Bankman-Fried’s defense team will need more time to prepare, given the expected mountain of evidence to sift through, Sabino said. “Far more important, it is more likely than not the prosecutors and SBF will talk a deal. So time will be needed to negotiate a plea bargain.”
In the meantime, if the opportunity arises for Bankman-Fried to offer material assistance, such as substantial aid in the recovery of victims’ funds or providing critical information on additional culpable parties, there could be an opportunity to obtain a plea bargain, Fasanello said. “Personally, and judging only from what is publicly known, I think the chances of a plea bargain at the outset of the case are very slim.”
Given Bankman-Fried’s stature in the hierarchy of the alleged FTX fraud, as well as his inability to aid depositors in the weeks before his arrest, extradition and arraignment, he’s left with little leverage to offer prosecutors as a bargaining chip for reduced charges or plea agreement, Fasanello said.
But if the circumstances change before his anticipated trial 10 months from now, perhaps the setting could be right for a plea deal, Fasanello noted.
A case can be drawn out for months or even years, Buchanan noted. “So it’s really difficult to predict at this time how quickly the government will bring this case to trial. And that really depends not so much on the government, but it depends upon how many motions SBF and his team file to attempt to exclude some of the government’s evidence.”
Sabino estimates a trial date could be pushed out a year from now — or longer. “Frankly, the odds of a deal are at least slightly better than a trial ever taking place,” he added.
“It will take years — my guess is at least a decade — to unwind FTX, find the assets (if any), provide a recovery (if any) for creditors, and then establish who are the investors, what did they lose, and then — maybe — provide some kind of recovery for those poor souls,” Sabino said. “But two things are virtually guaranteed: It will take many years for this to happen, and any recovery by investors in FTX will be minimal, at best.”
Going forward, this case can mean a lot for the crypto industry, both good and bad. For starters, it can speed up regulatory oversight in the U.S. while also setting precedent for crypto companies as to how to operate in the current legal environment — or face repercussions.
“This case is very important to the crypto industry as a whole because it should cause urgency to U.S. regulators to move forward and regulate the space,” Buchanan said. “There are many things that regulators can do if they regulate the space in the U.S. There can be requirements for client reserves, there can be requirements for auditing, there can be capital requirements to make sure that those who are participating on exchanges know that their assets are going to be available and can be regular audits.”
There could also be clearer lines of responsibility for the jurisdiction of the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission over initial coin offerings (ICOs) and regulating crypto, for example. Additionally, those agencies could be responsible for “weeding out the bad guys in the crypto world,” Sabino said.
As for the public, most retail investors will be “gun shy for quite some time and avoid crypto as if it were stock in Enron,” Sabino said. But eventually, if the crypto industry can reinstill confidence, it will resume its place in the world of investing, he added.
“This case reflects the hawkish approach to oversight of the maturing digital assets space,” Fasanello said. “This is go-time for the industry to button up and operate as the quasi-financial institutions — or even in many cases actual financial institutions — that they are and depart from the historically common misconception that somehow crypto is above the law.”
This is not the end of crypto, though; not by a long shot, Sabino said. Immediate ramifications will come from prosecutors and lawmakers alike. “But, if things break the right way, some good will come out of this,” Sabino said.