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How risky are your bets?
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How risky are your bets?

"A thief who takes his loot to Las Vegas and successfully bets the stolen money is not entitled to a discount on the sentence by using his Las Vegas winnings to pay back what he stole." The above quote were the chilling words of Judge Lewis Kaplan at the sentencing hearing in Manhattan of Sam Bankman-Fried on March 28.

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Bankman-Fried, 32, was the founder of FTX, which had quickly become the world's second-largest cryptocurrency exchange. The exchange provided the platform for investors to buy and sell digital assets such as Bitcoin. 

As I have explained in past editions of this column, in November 2022, Bankman-Fried's crypto empire came crashing down after it emerged that customer funds worth US$10 billion were missing.

That was unexpected, as Bankman-Fried had succeeded in wooing many to believe in him as a prodigy, the person who could or was destined to transform the finance world—at some point gracing the covers of Forbes and Fortune magazines. The next Warren Buffet? 

Well, some argued that the American, described as “wonder kid” at some point, possessed something special that could make him a revered business mogul, and of course, with the cash that comes with it. He was a billionaire before the November 2022 black afternoon.

The disappointment is huge, as the only “wonder” about him now is how a life full of so much promise could be cut short this way. Bankman-Fried is to serve a 25-year jail sentence for his sins against investors, customers and many more.

"The defendant victimised tens of thousands of people and companies, across several continents, over a period of multiple years," prosecutors had said in a court filing, demanding 40 to 50 years jail term.”

"He stole money from customers who entrusted it to him; he lied to investors; he sent fabricated documents to lenders; he pumped millions of dollars in illegal donations into our political system; and he bribed foreign officials. Each of these crimes is worthy of a lengthy sentence."

But just hold on a bit, if you are about to pass your own judgement on his conduct after reading some of the claims made by the prosecutors. As you would expect, a high-profile case of this nature would attract some top legal arguments. 

And so, it proved.  During the trial, there were reports, some directly out of court proceedings and others from commentaries that Bankman-Fried had intimated that he had not misappropriated any funds and that given time all customers could be paid in full.

In fact, at the back of this claim, the judge described the statement as "misleading and logically flawed", and that: "A thief who takes his loot to Las Vegas and successfully bets the stolen money is not entitled to a discount on the sentence by using his Las Vegas winnings to pay back what he stole."

Meanwhile, there are claims by other commentators that there are indeed funds available in FTX that could pay customers, whether in full or in part. Well, it all comes down to risk-taking and the interpretation you place on the act after the facts have been established. Judge says, “you are a thief”, and Bankman-Fried says, “I can still pay my customers, regardless”! In the literal sense.

In the February 17 edition of this column, under the headline A bit of risk! I explained some of the uncertainties in the crypto asset market, despite all the frenzy about it. In the above-referenced edition, I stated that: “Well, if you are an ardent reader of this column, you would have noticed that over the past five years- and more- I have been banging at the crypto market, particularly, because of its volatile nature and the large swing of fortune for investors. Today is another episode, this time, to explain why the reversal of fortune, as far as bitcoin is concerned, does not mean that we can pop the champagne! Sorry, the champagne should still be on ice, unfortunately!”

Personally, I doubt whether Bankman-Fried initially set out to defraud customers by false pretences, even though the evidence presented in court suggested some acts of malfeasance that he could have avoided—with the right guidance.

Yes, he portrayed himself as a tech geek, but the court said he wasn’t, putting up an appearance that made it difficult to see the real person that he was to gain the trust of customers, yes, he did, says the court. But admirably too, he was able to, at that very young age, get the world to believe in him as a “Crypto King” and even under some circumstances, supported other crypto market players from collapsing. He certainly had something special.

As l have always stated, risk pervades finance much the same way that gravity pervades physics, therefore, you should always make sure that you are taking on risks commensurate with your risk appetite. It even gets a lot trickier when using other people’s funds, like the case of Bankman-Fried. You can be jailed for mismanaging or misapplying other people’s funds. Oh yes, don’t try it.

Whenever you find yourself in the position of using other people’s funds to support your business or private life and are expected to pay back, please ensure that you fulfil your obligations under the terms of the agreement. 

And, also, be prudent when using your own money too. If you don’t become wise in your spending, you will find yourself out of money in the shortest possible time, and that could be a disaster, and a disappointment for you and your loved ones.

The truth is financial assets bear both risks and opportunities that can be exploited. You gain when you are in the money but when you lose it can come biting hard.
 
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