In This Article
Sam Bankman-Fried, former CEO of FTX, appealed his conviction and 25-year sentence, and also requested to stay in New York to facilitate his legal defense. Meanwhile, Do Kwon, co-founder of Terraform Labs, awaits a decision on his extradition from Montenegro, where he faces charges linked to Terraform's collapse. Both are part of broader scrutiny in the crypto industry, including Binance, which recently settled with the U.S. for $4.3 billion over compliance issues. Binance's new leadership under CEO Richard Teng is steering the company towards maturity even as it faces ongoing SEC scrutiny.
FTX Fallout Not Over
Sam “SBF” Bankman-Fried, the former CEO of crypto exchange FTX, has officially filed an appeal against his conviction and sentencing, according to documents submitted to the United States District Court for the Southern District of New York on Apr. 11. Represented by attorney Alexandra Shapiro, Bankman-Fried wants to contest the verdict and 25-year prison sentence handed down by Judge Lewis Kaplan. The appeal has come as no surprise considering the announcements made by his legal team at his sentencing on Mar. 28.
The legal proceedings trace back to November of 2022, when FTX collapsed due to severe liquidity issues, prompting a bankruptcy filing. Subsequently, Bankman-Fried was arrested in the Bahamas, extradited to the U.S., and convicted by a jury in November 2023 on seven felony counts, including fraud. The sentencing also involved a staggering $11 billion forfeiture order.
The appeal is expected to proceed to the Second Circuit Court of Appeals, where a panel of judges will decide the fate of his convictions. Meanwhile, the legal outcomes for Bankman-Fried’s associates from FTX and Alameda Research are unfolding as well, with sentences pending for those who have pleaded guilty, like Ryan Salame, Caroline Ellison, Gary Wang, and Nishad Singh.
Public opinion on the sentence is divided; some argue that 25 years is not enough when considering the impact on thousands of FTX customers, while others believe it serves as a strong deterrent within the cryptocurrency sector. The appeal’s specifics, including the grounds for challenge, were not shared in Shapiro’s filing.
Sam Bankman-Fried Fights for New York Jail Stay
In addition to filing an appeal for his conviction and sentence, SBF has also filed a request to remain in the Metropolitan Detention Center in Brooklyn rather than being transferred to California, where his sentencing is set to take place. His legal team submitted the request to Judge Lewis Kaplan in the United States District Court for the Southern District of New York on Apr. 8. Bankman-Fried, who has been held in Brooklyn since his bail was revoked in August of 2023, argues that staying in New York would allow him easier access to his lawyers as he prepares to appeal his conviction on seven felony counts and his 25-year sentence.
What Happened to FTX?
The collapse of FTX, once the third-largest cryptocurrency exchange, sent shockwaves through the cryptocurrency industry in November of 2022. In short, the rapid downfall began when a report from CoinDesk revealed that Alameda Research, a quantitative trading firm affiliated with FTX and overseen by its founder Sam Bankman-Fried, held most of its assets in FTT and other internally created tokens. These assets lacked the market-driven and time-tested value of more established currencies.
This disclosure raised serious concerns about the financial practices and stability of FTX. The news triggered a massive withdrawal of funds by investors and customers who lost confidence in the exchange's reliability. The sudden drain on its resources pushed FTX into insolvency, culminating in a bankruptcy filing.
The fallout from FTX's implosion is profound, undermining public trust in the cryptocurrency market and causing a domino effect among other crypto services linked to the exchange. The repercussions are expected to linger as investors, regulators, and legal systems work to recover lost funds and implement safeguards to prevent similar disasters in the future.
Montenegro's High Court Passes Kwon Extradition Choice to Justice Minister
SBF is not the only crypto big-name in hot water at the moment. Montenegro's High Court in Podgorica has deferred the decision on the extradition of Terraform Labs co-founder Do Kwon to either the United States or South Korea to Justice Minister Andrej Milović. This decision follows the Montenegrin Supreme Court's approval of a request for a protection of legality, overturning a lower court ruling that would have allowed Kwon's extradition to South Korea.
Kwon, who was arrested in Montenegro in March of 2023 for using false travel documents, is currently free to travel within the country pending the final decision on his extradition. Both the U.S. and South Korea seek his extradition to face charges related to alleged fraud and misleading of investors during the collapse of Terraform Labs in May 2022. A U.S. jury recently found Terraform and Kwon liable for fraud in a civil case initiated by the Securities and Exchange Commission.
Legal proceedings in Montenegro have seen numerous motions and appeals from Kwon's legal team, which might indicate plans to contest the most recent ruling as well. Meanwhile, Terraform Labs’ former CFO, Han Chang-joon, who was arrested alongside Kwon, has already been extradited to South Korea, where he and several others connected to Terraform, including co-founder Hyun-seong Shin, have been indicted.
What happened to Terraform Labs?
Terraform Labs, founded in 2018 by Stanford-educated former Apple and Google engineer Do Kwon, set out to revolutionize decentralized finance with its blockchain-based stablecoin system. Using TerraUSD (UST) and its sister token Luna (LUNA), the platform aimed to maintain a stable value for UST at one USD, backed algorithmically by the fluctuating price of LUNA. The innovative approach propelled LUNA to a peak of nearly $120 per token in March of 2022, earning Kwon the nickname "King of the Lunatics" among his dedicated followers, dubbed 'Lunatics'.
However, the stability of Terra’s ecosystem came into question in May 2022 when a loss of confidence similar to a bank run led to a massive sell-off of UST and LUNA. This precipitated the near total collapse of both tokens, with the event being labeled by some as a Ponzi scheme or a rug-pull scam. In response to the crisis, Kwon and Terraform Labs initiated a reboot of the system, launching Terra 2.0. This new blockchain severed ties with the original algorithmic stablecoin model, replacing it with a system that focuses on using Luna for staking, digital art transactions, and fee payments.
The original blockchain was renamed Terra Classic, and the original Luna token became Luna Classic (LUNC). Terra 2.0 introduced a new LUNA token with a fixed supply of one billion tokens, a dramatic reduction from the trillions for Luna Classic. Portions of the new tokens were distributed to stakeholders of the original tokens through an airdrop.
Despite these efforts to revive the platform, Kwon’s troubles have escalated. In September 2022, Interpol issued a red notice for him after South Korea sought his arrest and revoked his passport. By March of 2023, Kwon was arrested in Montenegro on charges including securities fraud and conspiracy
Binance Turns a New Leaf
Binance has taken major strides toward regulatory compliance after a landmark $4.3 billion settlement with the United States government in November of 2023. This settlement, which addressed charges of violating Anti-Money Laundering (AML) and sanctions laws, was a pivotal moment for Binance as it agreed to the oversight of an independent compliance monitor for three years and a five-year U.S. Treasury monitor.
Catherine Chen, Binance’s head of institutional and VIPs, discussed the implications of this settlement at the Paris Blockchain Week. Chen seemed very positive about the monitoring agreements, viewing them as beneficial for the exchange and the broader market. She emphasized that Binance had been preparing for increased regulatory oversight and welcomed the challenges it presented.
Binance's co-founder Changpeng “CZ” Zhao stepped down as CEO and pleaded guilty to failing to maintain an AML program. He is currently facing up to 18 months in jail, with sentencing scheduled for Apr. 30. In his place, Richard Teng has taken over as CEO, signaling a new era for Binance. Teng noted that the company is transitioning towards greater maturity and is currently in discussions with various jurisdictions to establish a formal global headquarters.
Despite the positive outlook from Binance executives, the Securities and Exchange Commission (SEC) continues to pursue additional charges against Binance, Binance.US, and Zhao. The SEC accuses them of selling unregistered securities and commingling customer assets, allegations that Binance denies.
