The allegations at the heart of the trial of Sam Bankman-Fried, or “SBF” as he has come to be known, paint a picture of a large-scale fraud — sweeping in scope, but limited to the misadventures of a particular corporate family at FTX and Alameda Trading. Misuse of customer funds, neglect or abuse of basic accounting responsibilities and lavish personal and political spending are surely serious and garner headlines.
But the allegations are not particularly relevant for the vast majority of the people in crypto or fintech. The government’s case does not represent a systemic threat to the core business model of most firms in this space, assuming those firms don’t act as SBF is alleged to have done.
Andrew C. Adams is a partner in the New York office of Steptoe & Johnson LLP, and a member of the firm’s Blockchain & Cryptocurrency team. Kane Smith is an associate based in Steptoe’s Washington, D.C. office.
But it’s worth considering charges that prosecutors have not yet had the opportunity to pursue in this first SBF trial, because they are of potentially broader relevance to anyone operating in crypto. Charges of bank fraud and illegal money transmission will not be put to the jury in the current SBF trial, and may never be aired at a future SBF trial. But digital asset companies continue to face a regulatory and prosecutorial environment, where the threat of such charges hangs over good-faith actors seeking to participate in global markets through traditional banking rails.
The charges the government did not pursue in the current SBF case are of systemic importance to the industry, reflecting the specter of regulatory and prosecutorial pressure that dissuades traditional financial institutions from engaging with lawful, ethical and viable digital asset projects. The mere potential for such charges place crypto and other blockchain projects between a commercial rock and a regulatory hard place.
The current fraud charges
In the immediate wake of FTX’s spectacular collapse in November 2022, prosecutors at the United States Attorney’s Office for the Southern District of New York (SDNY) rapidly proceeded to file charges alleging FTX’s misappropriation of customer funds.
On Dec. 9, 2022, a SDNY grand jury returned an eight-count indictment, charging Bankman-Fried with multiple…
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