White-Collar Crime

Sam Bankman-Fried was recently sentenced to 25 years in prison for his role in defrauding users of the collapsed cryptocurrency exchange FTX. While this sentence certainly seems harsh, and many commentators are stressing that the harm caused to investors was immense, several important federal sentencing statutes and programs will operate to significantly reduce the amount of time that Bankman-Fried actually spends in jail.

Under the First Step Act, Bankman-Fried will be able to receive “earned time credits” that will likely make him eligible for release from prison after serving 12.5 years. Under this act, inmates, like Bankman-Fried, who are convicted of qualifying fraud offenses and who complete “productive activities” can be eligible for pre-release custody (for example, home detention) at the halfway point of a sentence. The Bureau of Prisons (“BOP”) encourages inmate participation in these “productive activities” because they reduce recidivism.

Additionally, federal inmates can earn a reduction in their sentence if they are eligible for and complete the “Residential Drug Abuse Program” or “RDAP.” The RDAP program is the BOP’s most intensive treatment program in which inmates participate in half-day programming and half-day work, school, or vocational activities lasting nine months. If an inmate successfully completes the RDAP program, they can receive up to a one-year reduction of their prison sentence. In Bankman-Fried’s case, he would receive a one-year reduction of sentence if he completes the RDAP program.

Generally, regulation of the U.S. financial markets is divided between the Securities and Exchange Commission (“SEC”), with authority over securities, and the Commodity and Futures Trading Commission (“CFTC”), with authority over futures/derivatives. See Gary Rubin, CFTC Regulation 1.59 Fails to Adequately Regulate Insider Trading, Note, 53 N.Y.L. SCH. L. REV. 599, 606 (2008-09). The Commodity Exchange Act (“CEA”) of 1936 was the first major congressional initiative aimed at regulating derivatives. See Commodity Exchange Act of 1936, ch. 545, 49 Stat. 1491 (1936) (codified as amended at 7 U.S.C. § 1 (2006)); see also id. at 604. Generally, the CEA expanded upon prior acts by increasing the Secretary of Agriculture’s authority and making it “unlawful to engage in commodity brokering without first registering with the secretary.” Rubin, supra, 53 N.Y.L. SCH. L. REV. at 605 (citing CEA § 5, 49 Stat. at 1492-97).

The CFTC was established by the Commodity Futures Trading Commission Act (“CFTCA”) of 1974, which granted the CFTC the exclusive authority to regulate futures contracts. See 7 U.S.C. § 2(a)(2). The CFTC is a federal regulatory body that regulates the entire commodities futures industry. In its mission statement, the CFTC describes its main purposes as preventing fraud and promoting competition, stating, “[t]he CFTC’s mission is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets.” CFTC, About the CFTC, http://www.cftc.gov/About/MissionResponsibilities/index.htm.

Prior to the enactment of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act” or “the Act”), the CFTC was viewed as “a regulatory agency with a small bark and even less bite.” Peter J. Henning, C.F.T.C. Is Set to Get Tougher on Fraud, New York Times, Dealbook, available at http://dealbook.nytimes.com/2010/11/01/c-f-t-c-is-set-to-get-tougher-on-fraud/. However, with the enactment of the Dodd-Frank Act, the CFTC has gained new authority to regulate derivatives, credit default swaps and the exchanges that will trade these contracts.
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Articles Posted in White-Collar Crime

Sam Bankman-Fried Unlikely to Serve 25-Year Sentence

What type of “insider trading” is prohibited by the CFTC within the commodities and futures markets?