How Did Sam Bankman-Fried Make His $250 Million Bail?
The release this week of Sam Bankman-Fried, the disgraced cryptocurrency executive, from federal custody on a $250 million bond has raised questions about the federal bail process and why such a high-profile defendant was allowed to go free.
The bond essentially amounts to a promise to appear in court when required; it does not compel Mr. Bankman-Fried, who is charged with numerous crimes related to his handling of the cryptocurrency exchange he founded, to pay $250 million.
No money has changed hands and none will unless Mr. Bankman-Fried fails to show up for court or is found to have violated other conditions set by the judge.
In that case, his parents’ house in Palo Alto, Calif., which was used to secure the bond, could be seized by the government. The four people who are to co-sign the bond, including one nonfamily member, would be on the hook for the rest of the $250 million.
Two of those people are Mr. Bankman-Fried’s parents, Stanford law professors who supported their son in promoting his exchange, FTX. It is not known who the other two co-signers are.
What to Know About the Collapse of FTX
What is FTX? FTX is a now bankrupt company that was one of the world’s largest cryptocurrency exchanges. It enabled customers to trade digital currencies for other digital currencies or traditional money; it also had a native cryptocurrency known as FTT. The company, based in the Bahamas, built its business on risky trading options that are not legal in the United States.
Who is Sam Bankman-Fried? He is the 30-year-old founder of FTX and the former chief executive of FTX. Once a golden boy of the crypto industry, he was a major donor to the Democratic Party and known for his commitment to effective altruism, a charitable movement that urges adherents to give away their wealth in efficient and logical ways.
How did FTX’s troubles begin? Last year, Changpeng Zhao, the chief executive of Binance, the world’s largest crypto exchange, sold the stake he held in FTX back to Mr. Bankman-Fried, receiving a number of FTT tokens in exchange. In November, Mr. Zhao said he would sell the tokens and expressed concerns about FTX’s financial stability. The move, which drove down the price of FTT, spooked investors.
What led to FTX’s collapse? Mr. Zhao’s announcement drove down the price and spooked investors. Traders rushed to withdraw from FTX, causing the company to have a $8 billion shortfall. Binance, FTX’s main rival, offered a loan to save the company but later pulled out, forcing FTX to file for bankruptcy on Nov. 11.
Why was Mr. Bankman-Fried arrested? FTX’s collapse kicked off investigations by the Justice Department and the Securities and Exchange Commission focused on whether FTX improperly used customer funds to prop up Alameda Research, a crypto trading platform that Mr. Bankman-Fried had helped start. On Dec. 12, Mr. Bankman-Fried was arrested in the Bahamas for lying to investors and committing fraud. The day after, the S.E.C. also filed civil fraud charges.
A spokesman for Mr. Bankman-Fried declined to comment.
How is it possible that such a high-profile defendant was released without having to pay any money?
Mr. Bankman-Fried was in the Bahamas when he was charged, and extradition can be a highly complicated process, leading to a lengthy legal battle. In court on Thursday, a prosecutor, Nicolas Roos, said that had Mr. Bankman-Fried not consented to extradition, it was “a near certainty” that the government would have sought his detention.
Sabrina Shroff, a former federal defender, said: “My guess is that this was an agreed-upon bail package before he ever left the Bahamas. Extradition from the Bahamas is difficult, and the defendant may have had ample opportunity to challenge extradition, which could have dragged out for years.”
$250 million seems like a really high number. Is it?
Yes. It is highly unusual for such a large bond to be set.
Bernie Madoff received a $10 million bail agreement in 2008, while Billy McFarland, the entrepreneur who created the disastrous Fyre Festival, was released on $300,000 bail. Thomas J. Barrack Jr., a friend of Donald J. Trump’s who was charged — and eventually acquitted — with illegally lobbying the United States on behalf of leaders in the United Arab Emirates, is one of few defendants in recent memory whose bail amount was as high as Mr. Bankman-Fried’s.
But if the crypto executive abides by the terms set by the court, the amount is largely symbolic.
Those terms are manifold though and include:
Mr. Bankman-Fried must surrender his travel documents and stay at his parents’ house.
He must not open new lines of credit or start another business.
He may not enter into any financial transactions of more than $1,000, except to pay his legal fees.
He agrees to be monitored electronically.
The value of his parents’ house has either already been assessed or is now likely to be, and a lien on the house must be posted by Jan. 12.
Mr. Bankman-Fried’s parents have also been under scrutiny for their relationships to FTX. His father, Joseph Bankman, a tax expert, actually worked for the company while his mother, Barbara Fried, counted her son among the donors within a political advocacy network she orchestrated.
The Aftermath of FTX’s Downfall
The sudden collapse of the crypto exchange has left the industry stunned.
- A Spectacular Rise and Fall: Who is Sam Bankman-Fried and how did he become the face of crypto? “The Daily” charted the spectacular rise and fall of the man behind FTX.
- How FTX Operated: FTX called itself an exchange. But it was vastly different from stock exchanges, which are highly regulated and barred from engaging in many of the activities that the crypto company pursued.
- Political Donations: Federal prosecutors are seeking information from Democrats and Republicans about donations from Mr. Bankman-Fried and two former FTX executives.
- Ryan Salame: The former FTX executive, who told regulators about wrongdoing at the exchange and was a big Republican donor, has emerged as a central player in the scandal.
What does this have to do with New York’s bail law?
New York’s bail law, which was passed in 2019 so that defendants accused of certain low-level crimes would not be required to pay cash bail, has been the subject of considerable controversy. But Mr. Bankman-Fried’s case is federal, so he is not subject to that law.
Defense lawyers observing the case said there was, however, one point of commonality between the spirit of that law — which in part sought to prevent bail from being used to detain defendants unnecessarily — and the release of Mr. Bankman-Fried. Ms. Shroff said that the presumption of innocence was embedded in the Federal Bail Reform Act of 1966, which governs bail law.
Mr. Bankman-Fried “should get bail,” she said. “In fact, most people facing federal criminal charges, should have the opportunity to fight their charges from outside. Detention serves to break the spirit and strength of clients and that is not the purpose of the bail act.”