Victims' Financial Hardship at Center of Bankman-Fried's Sentencing Debate

B. The Number of Victims Enhancement Is Applicable

Pursuant to Section 2B1.1(b)(2) of the Guidelines, a two-level enhancement is warranted if the offense “involved 10 or more victims” or “resulted in substantial financial hardship to one or more victims.” U.S.S.G. § 2B1.1(b)(2)(A). The PSR concluded that this enhancement applies. Section 2B1.1(b)(2) also provides that where the offense “resulted in substantial financial hardship to 25 or more victims” a six-level enhancement is warranted. U.S.S.G. § 2B1.1(b)(2)(C). Because the offense resulted in substantial financial harm to more than 25 FTX customers, depriving many of them of their life savings, the six-level enhancement is appropriate. More than 25 victims have submitted letters in which they describe such effects as an inability to make their mortgage payments, inability to support family members, and other severe financial effects from the defendant’s fraud, and this is just a small subset of the many thousands of FTX customers who suffered financial hardship as a result of the defendant’s fraud.

The defendant objects to any enhancement based on substantial financial hardship to victims, relying on the Sixth Circuit’s decision in United States v. Yagar, 404 F.3d 967, 971 (6th Cir. 2005), which held that victims who “only temporarily lost funds … because their banks reimbursed them for their losses” were not “victims” under the Guidelines. (Def. Mem. at 30). However, as the defendant acknowledges, the Second Circuit has held that “individuals who have been fully reimbursed for their financial losses may be deemed victims for purposes of the sentencing enhancement set forth at U.S.S.G. § 2B1.1(b)(2).” Abiodun, 536 F.3d at 168. Distinguishing Yagar as a case where the loss was “short-lived and immediately covered,” the Second Circuit explained that the victim enhancement applies where the victims “suffered (1) an adverse effect (2) as a result of the defendant’s conduct that (3) can be measured in monetary terms.” Id. 168-69; see also United States v. Smith, 751 F.3d 107, 119 (3d Cir. 2014) (joining the Second, Ninth, and Eleventh Circuits in holding that “individuals who expend time, effort, and money before successfully obtaining reimbursement suffer an actual loss and remain victims under § 2B1.1(b)(2)”).

Here, the enhancement plainly applies. None of the victims of the defendant’s fraud have received reimbursement. The defendant’s argument relies on speculation that every victim may someday be made whole through the bankruptcy. But that is not a certainty, and the defendant has not cited any authority for the proposition that the enhancement under Section 2B1.1(b)(2) does not apply when victims may someday be reimbursed. Indeed, this is not a case, as in Yagar, where the loss was “short-lived and immediately covered.” Rather, as of the sentencing, tens of thousands of victims will still be experiencing losses, despite the time, effort, and in some cases money they have spent seeking to recoup their money or file claims in bankruptcy. By cutting off these victims’ access to their life savings for over a year, the defendant has already caused substantial financial hardship to them, even if they receive some measure of reimbursement at some point in the future.