The 8 Criminal Charges Pending Against Sam Bankman-Fried [Explained]

Written by Ricky Nave in Crypto Law & Regulation,Law

Sam Bankman-Fried (SBF) was arrested in the Bahamas on December 12, 2022. The Bahamanian government provided a statement that SBF’s arrest was in response to a formal notification from the U.S. that it had filed criminal charges against SBF and would likely request extradition.

These are the 8 crimes that SBF is being charged with:

  1. Conspiracy to Commit Wire Fraud on Customers
  2. Wire Fraud on Customers
  3. Conspiracy to Commit Wire Fraud on Lenders
  4. Wire Fraud on Lenders
  5. Conspiracy to Commit Commodities Fraud
  6. Conspiracy to Commit Securities Fraud
  7. Conspiracy to Commit Money Laundering
  8. Conspiracy to Defraud the United States and Violate Campaign Finance Laws

Each of the charges is explained below. Additionally, the SEC and CFTC have both filed civil lawsuits against SBF. You can find each lawsuit here:

1. Conspiracy to Commit Wire Fraud on Customers

Wire fraud is basically lying to someone over the internet (or radio or TV) for financial gain.

Conspiracy is when two or more people form an agreement to violate the law with the intent of achieving the agreement’s goal.

Conpsiracy to commit wire fraud is therefore when two or more people agree to transmit lies over the internet in order to receive financial gain.

In the case of SBF, he is being charged with conspiracy (with unnamed co-conspirators) to defraud customers of FTX.com by misappropriating those customers’ deposits and using those deposits to pay expenses and debts of Alameda Research and to make investments.

There are several facts that bring this case into U.S. jurisdiction despite FTX.com being operated by a non-U.S. company:

  • The fraud involves Alameda which uses one or more U.S. business entities (e.g. Alameda Research LLC, a Delaware company)
  • The fraud involves a company (Alameda Research) that uses at least one U.S. bank (Silvergate)
  • SBF is a U.S. citizen

The maximum sentence for conspiracy to commit wire fraud is 20 years (or 30 years if the fraud affects a financial institution).

2. Wire Fraud on Customers

The U.S. government accuses SBF of not just conspiring to commit wire fraud but of actually committing wire fraud which would be a second, separate crime.

The maximum sentence for committing wire fraud is the same as for conspiracy to commit wire fraud: 20 years (or 30 years if the fraud affects a financial institution).

3. Conspiracy to Commit Wire Fraud on Lenders

SBF is charged with conspiring to defraud lenders to Alameda Research by providing false and misleading information to those lenders regarding Alameda Research’s financial condition. Since lenders likely qualify as financial institutions, that means the maximum sentence for this crime is 30 years.

4. Wire Fraud on Lenders

SBF is charged with actually defrauding lenders to Alameda Research. This is a separate crime than conspiracy to defraud lenders and carries up to another 30 years as the maximum sentence.

5. Conspiracy to Commit Commodities Fraud

SBF is charged with conspiring to violate the following commodity laws and regulations:

  • 7 U.S.C. 9(1) — Prohibition against manipulating commodity markets such as through the communication of false or misleading reports concerning crop or market information or conditions that affect or tend to affect the price of any commodity in interstate commerce.
  • 7 U.S.C. 13(a)(5) — It is a felony to willfully violate any provision, rule, or regulation under Chapter 1 of Title 7 of the U.S. Code. The maximum sentence is 10 years.
  • 17 CFR 180.1 — Prohibition against intentionally or recklessly using any manipulative scheme, making untrue material statements, or engaging in fraudulent business activity in connection with any commodity or commodity instrument.
  • 18 U.S.C. 371 — Conspiracy to commit any offense against the United States, or to defraud the United States, together with some action taken to effect the object of the conspiracy, shall carry a maximum sentence of 5 years.

6. Conspiracy to Commit Securities Fraud

SBF is charged with conspiring to violate the following securities laws and regulations:

  • 15 U.S.C. 78j(b) — Prohibition on using manipulative or deceptive devices in connection with the purchase or sale of any security or security swap in contravention of SEC rules and regulations.
  • 15 U.S.C. 78f(f) — SEC authority to require compliance with non members of national securities exchanges to comply with specified SEC rules.
  • 17 CFR 240.10b-5 — Prohibition on making untrue statements or employing fradulent devices in connection with the purchase or sale of any security.
  • 18 U.S.C. 371 — Conspiracy to commit any offense against the United States, or to defraud the United States, and some action taken to effect the object of the conspiracy, shall carry a maximum sentence of 5 years.

7. Conspiracy to Commit Money Laundering

SBF is charged with violating the following money laundering laws:

  • 18 U.S.C. 1956(a)(1)(B)(i) — Knowingly engaging in a financial transaction with proceeds of some unlawful activity with the intention of concealing or disguising the nature, location, source, ownership, or control of the proceeds of the specified unlawful activity shall be sentenced to a maximum of 20 years in prison.
  • 18 U.S.C. 1957(a) — Knowingly engaging or attempting to engage in a monetary transaction with criminally derived property of a value greater than $10,000, done within the U.S. or by a U.S. person, is unlawful and carries a maximum sentence of 10 years.
  • 18 U.S.C. 1956(h) — Any person who conspires to commit any offense defined in section 1956 or 1957 shall be subject to the same penalties as those prescribed for the offense the commission of which was the object of the conspiracy.

8. Conspiracy to Defraud the United States and Violate the Campaign Finance Laws

  • 52 U.S.C. 30109(d)(1)(A) — Any person who knowingly and willfully commits a violation of any provision of the Federal Election Campaign Act of 1971 (as amended) which involves the making, receiving, or reporting of any contribution, donation, or expenditure aggregating $25,000 or more during a calendar year shall be fined and/or imprisoned for not more than 5 years.
  • 52 U.S.C. 30109(d)(1)(D) — Any person who knowingly and willfully commits a violation of section 30122 involving an amount aggregating more than $10,000 during a calendar year shall be imprisoned not more than 5 years.
  • 52 U.S.C. 30118 — Campaign financing rules regarding contributions or expenditures by national banks, corporations, or labor organizations.
  • 52 U.S.C. 30122 — No person shall make a contribution in the name of another person or knowingly permit his name to be used to effect such a contribution, and no person shall knowingly accept a contribution made by one person in the name of another.
  • 18 U.S.C. 371 — Conspiracy to commit any offense against the United States, or to defraud the United States, together with any action taken to effect the object of the conspiracy, shall carry a maximum sentence of 5 years.

Ricky Nave

In college, Ricky studied physics & math, won a prestigious research competition hosted by Oak Ridge National Laboratory, started several small businesses including an energy chewing gum business and a computer repair business, and graduated with a thesis in algebraic topology. After graduating, Ricky attended grad school at Duke University in the mathematics PhD program where he worked on quantum algorithms & non-Euclidean geometry models for flexible proteins. He also worked in cybersecurity at Los Alamos during this time before eventually dropping out of grad school to join a startup working on formal semantic modeling for legal documents. Finally, he left that startup to start his own in the finance & crypto space. Now, he helps entrepreneurs pay less capital gains tax.

Recent Posts