Federal Sentencing Guidelines Spell Deep Trouble for Sam Bankman-Fried

S am Bankman-Fried is expected to be arraigned in a federal district court in lower Manhattan today, on the indictment obtained by prosecutors in the Southern District of New York in December.

SBF is in deep, deep trouble. The main reason for that, besides what appears to be weighty evidence against him — including the prospective testimony of two close (alleged) accomplices who are cooperating with SDNY prosecutors — is found in the federal sentencing guidelines.

The guidelines essentially focus on two broad categories to compute a sentencing range: offense factors (the type of crime involved) and criminal history (the defendant’s background).

For fraud crimes of the type SBF is alleged to have committed, Guidelines Section 2B1.1 applies (see here and scroll down, or search for the word “fraud,” and you’ll come to it). In the indictment, SBF is charged with fraud crimes for which the statutory penalty is 20 years or more, so he starts off with a base offense level of seven.

Then the guidelines turn to the amount of fraud at issue. And that’s where things start to look really dire for SBF. While there have been valuations of the now-collapsed FTX cryptocurrency exchange in the $30 billion-or-more range that are no doubt wildly overstated, the amount of investor funds that SBF converted to his own use has been more concretely estimated at between $1.5 and $2 billion. Notice, though, that the fraud chart in subsection 2B1.1(b)(1)(A) only goes up to $550 million. This could cause prosecutors to argue that SBF’s fraud is so severe, it is beyond what the guidelines commission considered a “heartland” offense, and thus warrants a sentence longer than what the guidelines would ordinarily allow for. Even if a court were to reject such a claim, at $550 billion or above, the guidelines instruct the court to add 30 offense-level points.

That means we’re already at level 37. Under the guidelines sentencing table, a defendant with no prior criminal record (i.e., one who would be in criminal-history category I, the lowest of the six criminal-history categories) would be looking at a sentence of 210 to 262 months.

But we’re not done yet, because SBF was (allegedly) the head honcho of a sophisticated scheme involving multiple participants. This brings us to the “role in the offense” adjustments generally covered by Guidelines Section 3B.

“If the defendant was an organizer or leader of a criminal activity that involved five or more participants or was otherwise extensive,” Guidelines Section 3B1.1(a) instructs the court to increase the offense level by four points. That brings SBF up to level 41.

Moreover, SBF was also a fiduciary who was responsible for investor funds — people gave him money because they trusted him to safeguard it, and he instead converted it to his own use. “If the defendant abused a position of public or private trust, or used a special skill, in a manner that significantly facilitated the commission or concealment of the offense,” Guidelines Section 3B1.3 instructs the court to increase the sentencing level by two additional points.

Assuming no further offense-level enhancements, SBF is now at level 43. And even for a defendant in criminal-history category I, the sentencing table prescribes life in prison at that offense level.

If SBF were to notify the Justice Department early in the proceedings that he intended to plead guilty and cooperate in the investigation of his own (alleged) wrongdoing, he could qualify for a downward “acceptance of responsibility” adjustment of three levels, under Guidelines Section 3E1.1. If he were simply to plead guilty and express remorse for his actions, he would get the more standard two-level acceptance reduction.

Back down at level 40 (assuming the three-level reduction), he’d be looking at a sentence of between 292 and 365 months — i.e., potentially over 30 years. At level 41 (assuming the more standard two-level reduction), it would be 324 to 405 months.

As I explained last week, the daunting guidelines sentences for major fraud committed even by first offenders are what drive defendants to plead guilty and cooperate with the government in the investigation of other people. If in the prosecutors’ judgment such cooperation amounts to “substantial assistance,” the guidelines (in Section 5K1.1) authorize the government to file a motion that enables the court to sentence the defendant below the bottom end of the range computed under the sentencing guidelines, even imposing a sentence as light as no prison time at all. That is plainly why SBF’s alleged accomplices, Caroline Ellison and Gary Wang, have already entered guilty pleas, begun cooperating, and agreed to settle the civil cases brought against them by the Securities and Exchange Commission and the Commodity Futures Exchange Commission.

Based on what’s been reported, SBF’s problem here is that he is the top of the food chain, and thus may not have any substantial assistance to give the government.

I should note that the Supreme Court has held — in the 2005 case United States v. Booker — that the federal sentencing guidelines are instructive, not mandatory. Nevertheless, judges tend to follow them, within reason, in order to avoid the scandal of disparate sentences for similarly situated defendants, a feature of pre-1987 sentencing that the guidelines were implemented to rectify.

Finally, this being the era of racially obsessed critiques of the criminal-justice system, I am constrained to observe that the guidelines are severe for violent crimes committed by career criminals, racketeers, gang members, and others with extensive criminal histories. Black defendants, particularly young black men, are over-represented in these categories (by comparison to their percentage of the overall population). I have always believed the fraud guidelines, by comparison, are too harsh — SBF may be a terrible person, but he didn’t commit murders.

Nevertheless, white defendants are (in comparison to their percentage of the overall population) more prevalent in cases of financial fraud than in cases of violent crime. The harshness of the fraud guidelines enables those who are hyper-sensitive to racial critiques of the justice system to contend that so-called white-collar criminals can and must be sentenced as severely as violent criminals. If they catch a break — say, because something close to a life sentence seems disproportionate for a 30-year-old non-violent first-time offender — it can lead to outraged cries that the system is racist. Consequently, they are less apt to catch such breaks, no matter how many political donations they’ve made.

So, to reiterate: SBF is in deep, deep trouble.