Bankman-Fried’s Legal Woes Extend Far Beyond Criminal Trial

Sam Bankman-Fried is facing more than a dozen civil and regulatory lawsuits, even if he beats the criminal charges in a trial that’s entering its second week. That includes cases by the Securities and Exchange Commission, the Commodity Futures Trading Commission, and a proposed class action from FTX customers.

The criminal trial against the crypto mogul, who is accused of running a multibillion-dollar fraud at cryptocurrency exchange FTX, started Oct. 3 in the US District Court for the Southern District of New York. Bankman-Fried faces the possibility of decades in prison if convicted.

The civil cases are paused while the criminal case against Bankman-Fried plays out. He has pleaded not guilty to the criminal charges.

Read More: The Crypto Fraud Case Against Bankman-Fried and FTX: QuickTake

Here’s what to know about the outstanding cases.

Criminal Charges

Bankman-Fried still faces the possibility of a second criminal trial.

Prosecutors have twice added charges since Bankman-Fried was arrested in the Bahamas last December and transferred to US custody. The additional alleged crimes include that Bankman-Fried tried to bribe Chinese government officials to unfreeze accounts at Alameda Research, his hedge fund.

The Bahamas must consent to Bankman-Fried being tried on the additional charges, under a treaty with the US.

Amid uncertainties about how long that process would take, Judge Lewis Kaplan in the US District Court for the Southern District of New York severed the new charges from the indictment this summer. Kaplan set a March 2024 trial date for those charges.

The core allegations of fraud at FTX are part of the original indictment, attorneys say.

Barring a plea deal, whether the government decides to press a second criminal trial following any conviction could be a judgment call. The decision may be influenced by prosecutors’ view of whether the verdict will withstand appeal.

If Bankman-Fried is acquitted, a second trial could be another bite at the apple.

“The government doesn’t shy away from trial,” Sarah Krissoff, a Cozen O’Connor PC attorney and former federal prosecutor, said.

Civil Enforcement

The SEC and CFTC sued Bankman-Fried in mid-December 2022, the same day the criminal indictment was unsealed. Both agencies accuse him of fraud, although the regulators have taken different routes.

The SEC tailored its case to FTX investors, like crypto-focused Paradigm, which poured money into the exchange. The CFTC’s case focuses on FTX customers, who lost millions when the exchange imploded.

An acquittal wouldn’t prevent regulators from going after Bankman-Fried. But the agencies may have to re-evaluate the strength of their cases.

“The SEC and I think CFTC would probably take a long hard look at their evidence if there was an acquittal,” Ballard Spahr LLP’s David Axelrod, a former prosecutor and SEC attorney, said. “But there’s no legally preclusive effect. Those cases could get restarted right away.”

The SEC has pursued cases in similar situations before.

In 2004, the agency brought charges—but ultimately lost a civil trial—against Isaac Sutton, then chief operating officer of children’s toy company Happiness Express Inc. Sutton was accused of overstating sales results. Three years earlier, Sutton had been found not guilty in a parallel criminal case.

Joseph Dever, a former SEC enforcement attorney now at Cozen O’Connor, said he’d be surprised if the SEC dropped its case because of an acquittal. He noted the standard for liability in a civil lawsuit is lower than for a criminal conviction.

An acquittal could “motivate the SEC to pursue their case more, as opposed to scaring them into dropping it for fear of losing,” Dever said.

If Bankman-Fried is convicted of all charges, the agencies’ path becomes simple.

The cases likely would end with a judgment for the SEC and CFTC based on what was already proven. It would be unusual for the agencies to pursue additional financial penalties because restitution would be part of the criminal sentence, attorneys said.

The SEC’s case against former Enron Corp. CEO Jeff Skilling could be illustrative. The agency’s suit ended several years after Skilling was convicted of securities fraud and other charges related to Enron’s collapse. A judge entered a judgment for the SEC, which Skilling didn’t contest.

The 2015 order barred Skilling, who had been ordered to pay more than $40 million in restitution, from serving as an officer or director of a publicly held company.

Class Actions, Bankruptcy

Bankman-Fried, three FTX insiders, and dozens of celebrities who promoted FTX face allegations in the US District Court for the Southern District of Florida, where a proposed class action is currently on hold pending the outcome of the criminal trial in Manhattan.

The civil suit alleges fraud, civil conspiracy, negligent misrepresentation, fiduciary breaches, unjust enrichment, and RICO Act violations, among other claims. The plaintiffs also say Bankman-Fried violated state securities and unfair trade laws in California and Florida.

The first action in the now-consolidated case, filed in Florida against FTX brand ambassadors, focuses on allegations that celebrities including star NBA player Stephen Curry, model Gisele Bundchen, and “Shark Tank” host Kevin O’Leary received millions of dollars in bribes to promote the platform and mislead consumers.

The celebrities haven’t denied stating publicly that consumers could trust FTX—as seen in advertisements and social media posts where they said they knew FTX and were “all in”—but contend they weren’t subject to personal jurisdiction in Florida, according to the consolidated complaint.

The celebrity defendants must now face the merits of the case in a Miami federal courthouse alongside Bankman-Fried, which plaintiffs say may be the only avenue for harmed investors to recover any damages, given the bankruptcy proceedings FTX faces.

“Plaintiffs take basically the same story here, but for them to prove that story is way easier than the criminal case,” said Tom Gorman, partner at Dorsey & Whitney LLP and former SEC enforcement attorney, who isn’t involved in the case. “The burden of proof is way bigger and way more important than people say.”

“By the time all these guys get done with him, he’s not going to have much left,” Gorman said.

The proposed classes of plaintiffs include consumers who, if certified, could number in the thousands or millions worldwide, according to the complaint.

The proceedings against Bankman-Fried and FTX insiders are on pause until the conclusion of the criminal case, an order filed Oct. 2 says. The sports and entertainer defendants opposed the stay, calling it “plaintiffs’ latest gambit to delay the day of reckoning for their deficient pleadings.”

Bankman-Fried is also a defendant in various cases filed in the US Bankruptcy Court for the District of Delaware.

That includes a suit brought by FTX and Alameda alleging Bankman-Fried and his inner circle breached their fiduciary duties and squandered hundreds of millions of dollars of company assets on luxury homes, political and charitable contributions, and other disputed spending.

Among the transactions identified in the complaint are $35 million in donations to a nonprofit run by Bankman-Fried’s brother, and over $240 million spent on real estate in the Bahamas. FTX and Alameda want to claw back the money to repay creditors and investors.