Joining us now is Paul tuckman a former Federal prosecutor and current partner At Wigan and Dana as well as Zach Shapiro managing partner at the crypto Focused Law Firm Reigns thank you both Very much for joining Us thank you and good afternoon thanks So much for having me Again so Paul you're a former Federal Prosecutor with experience Prosecuting And defending fraud investigations here In New York you served as an assistant Us attorney for the US attorney's office For the eastern district of New York for More than a decade so given your Experience I want to start off by asking What do you think about Sam bigman freed Sentence were you expecting 25 years his Lawyers were seeking a sentence of five To six and a half years prosecutors were Seeking 40 to 50 years so are you Surprised that judge Kaplan sentenc Mement free to 25 years in prison given That represents a pretty significant Departure from what prosecutors were Seeking uh yes frankly I am a little bit Surprised based upon um the demeanor and The rulings that judge Kaplan made During the trial uh as well as the Arguments the prosecutors made that Judge Kaplan both during the trial but Then also during the sentencing Proceeding today generally uh agreed With the prosecutors on in terms of the
Nature of the seriousness of spf's Conduct uh the loss amount uh the fact That he perjured himself judge Kaplan Found during the course of his testimony A trial and lot of all of those findings That judge Kaplan made u i frankly found It a little surprising that the sentence Was uh not a bit at least a bit higher Certainly uh not necessarily the 40 to 50 years that the prosecutors were Seeking but um I you know 25 years was On the low end of what I was expecting Going into the sentencing hearing today And then particularly as I said after Judge Kaplan reached those um findings About the perjury and about the loss Amount So Paul expanding on that today bankman Freed took the stands and had a Remorseful tone quite the contrast from His testimony during his trial bankman Freed claimed responsibility for the Collapse of FTX and said he was sorry That customers were deprived of their Crypto gains so do you think those Comments on the stand today played into His sentence at all it's important to Note though that this morning judge Kaplan increased the sentencing Guidelines range for B been free to a Maximum possible sentence of 110 10 Years after finding that he had Committed perjury at his trial and Knowingly obstructed justice so it
Sounded from the get-go that he wasn't Going to be Lenient it did sound that way and I I Don't think that um the statements that Um bankman freed made during his Sentencing necessarily um were uh part Of the reason why he got what I would Expect a lower sentence than I expected To see him get certainly on the one hand He did Express I don't know if I would Want to call it remorse but he did Express regret and sort of sadness for Um his colleagues um at FTX as well as To the investors um or not so much the Investors but the depositors who lost Money certainly he said that he was sad That they lost money and it in some way It seemed that he acknowledged some kind Of responsibility for the fact that they Did lose money but at the same time uh Importantly because he has an appeal Pending and therefore anything he says To that indicates um that he actually um Agreed agrees that he did commit a crime He's continuing to maintain his Innocence through the appeal process and If he was to win an appeal uh any Admissions that he makes in the course Of the sentencing proceeding could be Used against him at a future trial and So for that reason he didn't fully I Would say and I think judge Kaplan Agreed in the remarks that that that I Saw quoted didn't really agree that um
Or believe that s SPF had truly been Remorseful and in fact one of things That judge Kaplan said when imposing Sentence was that he had a real concern That bankman freed um when he whenever He concluded his sentence was in fact a Danger to commit another crime like this In the future and certainly if um the Statements that SP SPF made at Sentencing to the judge um certainly uh If those had been successful in his the Goal is truly showing remorse that I I Certainly don't think judge Kaplan would Have um made that reached that Conclusion during the sentencing hearing Today so Zack what's your reaction to Bankman Freed sentence today judge Kaplan rejected spf's argument that There was no loss at FTX calling the Claim misleading logically flawed and Speculative based on everything that Happened in the courtroom today were you Expecting 25 years and do you think the Victims will think this sentence is Appropriate and Fair yeah thanks uh I think 25 years is Is pretty close to what I would have Expected I would maybe even expected a Little bit lower um the way Federal Sentencing Works uh in criminal cases is Judges have to start by calculating a Guidelines based sentence using an Elaborate formula uh those guidelines Used to be mandatory in terms of what
Judges had to sentence people for now It's just a starting point um but when You deal with crimes that have big Numbers involved whether that's you know A large quantity of drugs or in this Case a large amount of money uh that's Gone missing uh the end output of those Guidelines tends to be a really large Number and so it's not surprising the Judge would do a downward departure uh From the guidelines calculation and that Really puts the sentence into a question Of what would the judge you know judge Capital in this case think is fair um And we're talking about a white collar Crime here right a bad white collar Crime a really big white collar crime a Brazen one uh but if you look at murder Sentences uh in gang trials in the Southern district of New York those are Often in the 20 to 25 year range and so I'm not surprised that uh Z pman Frey Didn't get a 40 or 50y year sentence uh I do think that his and his lawyers Performance today were pretty bad um his Lawyer Mark Mesi really painted him as Sort of a a hero of some sort called him A beautiful puzzle pointed out his Veganism called him you know he read Like a ttic scholar and I think that Really maybe missed the point in terms Of how much damage he caused of course There were losses um the fact that the FTX made some lucky Venture Investments
That were able to make creditors whole As of the bankruptcy notably not in Crypto terms but in you know the Bankruptcy terms I don't think absolved Him of any of the crimes the fact that He seems to have perjured himself down The stand also certainly didn't help uh And the fact that when Sam testified Himself today he was more focused on the Facts of what happened than showing Contrition to the victims I think also Didn't help so I think 25 years is a Harsh sentence I think it was in the Expected range uh but I think that this Is just and what I hope is I think a lot Of the crypto Community was skeptical of What sentence he would get they thought He might get an unreasonably low maybe Below 10year sentence and that just Wouldn't be done and uh you know there Were frankly a lot of conspiracy Theories about that and I think that you Know it's good to show the crypto Community that Justice does work at Least in this case you are in fact a Crypto focused attorney so in what ways Do you see this case being a template For the crypto space at large US Attorney Damen Williams issued a Statement saying that today's sentence Sends an important message to others who Might be tempted to engage in financial Crimes that consequences will be severe Do you think that message will resonate
With with those thinking of defrauding Crypto investors from here on Out yeah I think so last time we spoke About this I mentioned that I think this Is really more a story about old school Fraud than it is about crypto itself I Think there's one way in which that's Not true uh which is that the crypto Community I think has to learn this Lesson every couple of years that the Whole ideal behind crypto is creating Open-source trust list systems where you Can see you know using a blockchain or Similar tool where funds are uh what the Mechanisms are to secure funds and who Has permissions to move those funds and That obviously doesn't work when you Just trust a third party in this case FTX but there are other examples Famously mount goau in the early days of Crypto one of the early Bitcoin Exchanges uh when you trust someone with Your crypto assets they can move it Right and we're talking about digital Bear instruments that are easily stolen So I think you know in so far as this is An important lesson to the broader Crypto Community maybe it's less towards The people who' commit fraud I mean I Think this is no different than any Other large criminal case in that Respect but for you know crypto Investors the people who are the Depositors who lost money in this case
Uh to really think about who do you Trust to if anyone do you trust your Cryptocurrency with is it better to Self- custody or use a collaborative Custody model for cryptocurrency uh or To use sort of more quote unquote Trustless uh you know tools on the Blockchain to hold your digital Assets so Paul what happens next you Touched on this but SPF is expected to Appeal today's decision what do you Think will happen with appeal feel and What steps are Involved well the next step actually is That in a uh within the next couple of Months U presumably um s SPF who has Been living at the Metropolitan Detention Center in Brooklyn ever since He was remanded after the judge found That he violated the terms of his bond Before the trial um he's going to be Designated to a Federal Detention Facility somewhere in the United States And um judge Kaplan recommended today That he be go to a medium uh facility Medium security facility or something Less secure than that doesn't seem to Have concerns about SBF you know Engaging in violence or in trying to Escape um you know as one may have heard There are federal prison camps in the Federal prison system which are known as Club fed and um those are sort of the Most desirable of course uh places for
Federal inmates however um it doesn't Look like that s SPF is going to be Eligible Ser of a sentence there at least not for A bit because generally the rule is that You can't serve um your time there until You have 10 years or less remaining on Your sentence so instead he's going to Go to something closer to a real prison Whether it's medium security or at least Low security uh in the meantime his Lawyers are going to put together um an Appeal um on the one hand um there was An overwhelming amount of evidence I Think most observers agree that was Introduced by the government at the Trial that will make it quite difficult To show that there was an insufficient Amount of evidence um to uh convict and Similarly the theories that the Government prosecuted the case on were Not particularly novel or Cutting Edge It was actually despite the large amount Of losses and the extent of the uh fraud A relatively uh simple uh case and so I Don't think there's too much concern About legal issues I think the main Concern um or the main um likely to be What's likely to be the Main Avenue of Appeal or the main arguments on appeal Will be that uh judge Kaplan uh ruled before trial that uh Bankman freed could not put on a number Of aspects of the defense that he wanted
To mount in terms of calling certain Kinds of expert Witnesses terms of Certain things he wanted to testify About himself um with respect to various Aspects of um for example uh the terms Of service that FTX had um and so there Were certain things you know if he he Wanted to and he made motions about Being able to mount in his defense uh And the judge Kaplan denied that so I Think that's likely to be um the the Biggest point that that they'll raise um The meantime one other thing that I Wanted to mention when we talk about the Sentence um is that in fact while 25 Years certainly is a long time um s SPF Starts out like all federal inmates uh With a 15% good time credit um which he Can only which he could lose if he does Not engage in good behavior while while He's in prison but even if you give him That 15% time off for good behavior you Get down to around a little more than 21 Years um and then with the Federal First Step act which was enacted in 2018 White Collar defendants and in convicts like Him have the opportunity to earn Significantly more uh good time credit Certainly at least another year perhaps Off his sentence then a significant Amount where he could actually serve a a Significant number of years of his Sentence um on home confinement so I Think that's another thing just to keep
In mind when we think about the severity Of the sentence um 25 years um is a long Time uh but it is certainly possible That a good chunk of that sentence will Be served uh at Home and Zach how has crypto sentiment Changed in terms of legal compliance Since a jury found bankman freed guilty Of all seven criminal accounts against Him back in November have you noticed That crypto companies have been working To be more compliant since then Um look I I think most crypto companies Were not in danger of violating the law In the same way that Sam mman freed and FTX did right that I think is just an Outright fraud uh the two major Regulatory issues in crypto right now That you know companies are are working Their best to comply with uh the the Biggest one is around Securities Law Compliance and the offer and sale of Tokens you know either a primary sale From issuers or a secondary sale on Exchanges like coinbase and binance do Those constitute in investment contracts Or Securities offerings in a way that Gives the SEC jurisdiction and there are Three major civil cases going on right Now directly about that question in Addition to the Ripple case uh that is The 800 pound gorilla in the room of Crypto and I think you know certainly All of my clients and I think most
Crypto companies out there really would Love to comply with the Securities laws In so far as that's possible I think Unfortunately the SEC is a little bit Playing hide the ball with where the Contours of what an investment contract Is or isn't in the case of digital Assets so um certainly companies are Trying to comply but they're also trying To get wins in court and I think with The Ripple decision um and you know We'll see what happens in the coinbase Case but maybe they will get some of That Clarity from federal courts they're Not getting from the SEC um and then There's also efforts of course on the Lobbying front and the policy front to Get new laws passed uh that create I I Think more rational rules that apply Digital assets the other main question Is where is the line between uh Peer-to-peer code code uh right Decentralized exchange where it is two People exchanging assets one between Another using Code as an intermediary And a financial institution right at What point does a decentralized exchange Does a protocol get regulated like a a Company um and that's I think a really Gray area the the technology that those Rules would apply to is constantly Changing um we got one nice ruling Yesterday in the coinbase case where uh The sec's claim that coinbase was acting
As a brokerage through its wallet which Essentially was just a front-end that Allowed users uh to access decentralized Exchanges and defi protocols um that was Dismissed by the court I think that's a Great sign about where we might be Headed on defi regulation um but I think Regulation in the cryptos space and Compliance in the crypto Space is really Much more about these questions the sort Of money service business versus Peer-to-peer protocol and the you know Is a token a commodity or an investment Contract security that's much more where The action is than you know are people Going to perpetuate the type of massive Fraud we saw s fre Zack Shapiro and Paul Tuckman thank you both very much for Joining Us thank you Anytime
