The trial of 'crypto king' SBF is the Enron scandal for millennials

Over the past 20 years, according to authors Gretchen Morgenson and Joshua Rosner, the number of federal white-collar prosecutions fell by half. Think of the limited prosecutions following the 2008 financial crisis as proof. The question now is whether the high-profile trial of cryptocurrency magnate Sam Bankman-Fried is about to change that.

First, some history. In the 1980s after the savings and loan crisis, the Department of Justice convicted more than 1,000 bankers. This aggressive approach reached its apex with 2006’s Enron trial.

Since then, though, the number of white-collar prosecutions has dwindled. One reason may be that the financial machinations at the center of white-collar schemes became so complex that prosecutors hesitated to try to explain them to juries.

Whatever the reason, frustration is mounting. Populist movements have blossomed on the right and left, sharing a distrust of the rich. Faith in institutions has plummeted. For my generation (I’m a millennial who graduated college in 2008), we have never known a world where these sorts of cases were the top priority for authorities.

SBF trial will set mold for white-collar prosecutions

But now Sam Bankman-Fried, known as SBF, and his cryptocurrency exchange (FTX) have entered the chat. If SBF is convicted, it will be Enron for millennials − a generational case that could resuscitate the practice of white-collar convictions. Here’s why.

Set aside the complexity of margin loans, digital currency and cross-border regulations. The question facing SBF’s jury is simple: Did he lie to − did he intend to trick − his customers and use their money as his own?

Proving intent is hard. We cannot crawl inside the mind of a defendant.

Prosecutors instead use circumstantial evidence, such as altered financial statements, to connect the dots.

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SBF prosecutors will be challenged to prove intent

I’ve seen plenty of white-collar investigative files, and proving intent will be particularly challenging here. SBF’s defense is that he was an absent-minded professor who lost track of how much money was going in and out of a booming crypto exchange.

Showing intent is even harder when words such as “blockchain” also have to be explained to the jury.

And the stakes for winning are high. Forbes once called SBF the “richest self-made newcomer in Forbes 400 history.” For my parents, I’ve explained it as the equivalent of indicting Warren Buffett.

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For those of us who work in white-collar law enforcement, we’re watching closely. Prosecutors make decisions about what they think a jury will believe based on what they think society will accept. Will a jury of 12 folks − a teacher, a physician assistant, a train conductor − be able to wade through abstruse finance terms and find SBF guilty?

If so, it may imbue other prosecutors with confidence to take on similar cases.

Or have prosecutors emerged from their post-2006 hidy-hole only to get kicked in the teeth? Was this the wrong case for such a gamble?

If so, law enforcement will have another piece of evidence that financial fraud trials in the age of crypto (and collateralized debt obligations and every other complex instrument) may not be worth trying.

Shad White is the state auditor of Mississippi.