What can we learn from the SBF ruling?

Thursday, March 28, will mark the end of one of the strangest stories of the 21st century: how the sons of two Stanford law scholars systematically stole $8 billion in the name of technological optimism and elite philanthropy, but their real purpose was to accumulate power as quickly as possible.

Outside the courthouse before his criminal trial in the U.S. District Court for the Southern District of New York.

That’s the basic story of SBF, who will be sentenced on March 28 on seven fraud-related counts that a jury returned last November. His sentence will also be based on allegations, untried but well-documented, that he used stolen client funds to bribe Chinese officials and finance a series of campaign finance frauds that once made SBF a force to be reckoned with in American politics.

The sentencing recommendation federal prosecutors submitted to Judge Lewis Kaplan on March 15 may tell this story in the most concise and compelling form yet. By meticulously establishing SBF’s repeated and intentional deception, backed by a series of heartbreaking victim testimonies, prosecutors recommended a sentence of 40-50 years in prison for SBF. That’s a long sentence – but still well short of the 100-plus years that could have been possible.

A “favor” for investors

SBF’s defense team requested leniency, arguing for a sentence of only six years. This request relied heavily on two arguments that were proven invalid at trial: that SBF never actually stole any money, and that he donated a lot of money to charity. The first argument was largely based on the misleading idea that the FTX bankruptcy estate had “repaid depositors in full,” a truly deceptive idea that FTX’s resurgent CEO John Ray III had strongly refuted in his own brief.

Indeed, the idea that FTX deposits will eventually be repaid echoes SBF’s criminal motivations. Despite attempts by him and allies like Michael Lewis to portray him as a hapless man, SBF has clearly believed since his arrest in December 2022 that he could gamble with other people’s money and win. As Caroline Ellison testified, SBF viewed FTX customer funds as a “good source of funding” to fuel the exchange’s growth, despite his repeated public claims that deposits were sacrosanct.

SBF argued that he was doing depositors and investors a favor, pushing FTX to its maximum “expected value” as quickly as possible — after which he could repay all deposits. In his view, he wasn’t stealing, he was just borrowing. Even after he was convicted, allies like Stanford’s Jon Donohue and Yale’s Ian Ayers made essentially the same argument. Here’s his defense team speaking again.

Judge Kaplan has expressed his utter disdain for this moral turpitude. “That’s like saying if I broke into the Federal Reserve Bank, stole $1 million, spent it all on the Powerball lottery, and happened to win, that would be OK,” Kaplan quipped during his Oct. 11, 2023, trial.

Likewise, one inconvenience of relying on SBF’s charitable work as good character evidence is that, as established at trial, the donations themselves were largely made from stolen client funds. While the defense’s leniency package included a series of character witness statements in favor of SBF, they were limited and sometimes bizarre, including many from people who knew SBF only as a child, as well as a statement from an alleged pedophile whom SBF appeared to have befriended in prison.

Last year I spent a month observing SBF's criminal trial. Time and again I saw Judge Lewis Kaplan react with disdain, even anger, to the misleading and dishonest arguments of SBF's defense team. Nor would he side with them a second time: I believe it is very, very likely that Judge Kaplan will follow the prosecution's recommendation and sentence SBF to approximately half a century in prison.

Barring an unlikely success on appeal, given the way these things work, this means SBF will be in prison well into his sixties.

SBF’s fall does not cleanse cryptocurrencies of their sins

It is often said that SBF’s crimes had little to do with cryptocurrency as a technology, which is indeed true. SBF’s Wall Street background is similar to that of many other criminals in the 2022 crash, and he mostly viewed cryptocurrency as an easy way to make money because of its volatility. His fraud relied on centralization and opacity to defraud customers—an inversion of how on-chain finance works if anything.

Nonetheless, he did choose to run a long scam in the crypto industry, and his sentencing is a time for the industry to reflect and perhaps learn a thing or two.

Above all, it is critical not to fall into complacency. Among the documents included in the prosecution’s sentencing package was a truly insane list written by SBF (SBF) of ways he could reframe his crimes after the collapse of FTX. Among them was the proposed narrative that “SBF died for your sins.”

Despite the lack of evidence of fraud, the plight of the Blast project is reminiscent of what happened to SBF. The project’s hasty launch and yield-focused marketing are symptomatic of the same maximalist impulse that ultimately led SBF to crime, poverty, and now prison. As greed once again overrides concerns about deeper social and political reform that are the foundation of the cryptocurrency movement, we will see another round of fragility, risk, fraud, and crashes. Smart people will see through those promises of “native yield,” “double staking rewards,” or “20% APR” and recognize them for what they are: big, flashing warning signs.

Ignoring warnings and taking risks are the root causes of SBF’s downfall. He ignored repeated objections from his lieutenants Caroline Ellison, Nishad Singh, and Gary Wang, all of whom will now face their own sentencing. Convinced that he was smarter than anyone, SBF ignored the advice of his lawyers that they “didn’t know what they were talking about” and refused to go on a full-blown PR tour after the FTX collapse. Those interviews helped prosecutors limit his defense team and secure his conviction.

Lessons from the industry and life

The worldview that drove SBF’s reckless scheme was similarly built on a massive ego. It came down to his belief in his own infallibility and his disdain for the moral standards he thought “normal people” should abide by. Ellison testified at trial that SBF didn’t think rules like “don’t lie” or “don’t steal” applied to his chosen moral code. His moral code was a mix of his mother’s utilitarian consequentialism; the equally utilitarian “make money and give it away” propaganda of the effective altruism movement; and the endless “expected value” calculations he learned as a trader on Jane Street.

There are many lessons to be learned from watching a man who could have made a real contribution to the world suffer the consequences of being locked up for nearly his entire life. But a few key points seem particularly clear.

First, caution and humility are not sins. Risk management is part of achieving sustainable success, whether as a founder or a trader.

Second, morality matters—not the morality of what might happen in the future, but the morality of how you treat others now.

Finally, greed is dangerous. While you can enjoy crypto assets when they appreciate in value, focusing too much on the growth of numbers rather than the fundamentals is the quickest path to poverty.

Or it could be worse.