The Journal. - Bankman-Fried Sent to Jail Before Trial

Episode Date: August 14, 2023

On Friday, a federal judge revoked FTX founder Sam Bankman-Fried’s bail. The judge said SBF had pushed the limits of his bail conditions repeatedly and will await his expected October trial in jail. WSJ's Caitlin Ostroff reports on what she witnessed in the courthouse. Further Reading: - Judge Sends FTX’s Sam Bankman-Fried to Jail Ahead of Fraud Trial  - At FTX, Multimillion-Dollar Expenses Were Approved by Emoji  Further Listening: - The FTX Insiders Turning Against Sam Bankman-Fried  - ‘Do You Expect to Go to Prison?’: An Interview With SBF  Learn more about your ad choices. Visit megaphone.fm/adchoices

It's Friday, August 11th, and I am in front of the Southern District of New York courthouse in Lower Manhattan. That's our colleague Caitlin Ostroff. She was covering a court hearing for Sam Bankman-Fried, the embattled founder of the crypto exchange FTX. Like, I'm surrounded by a bunch of media who are basically just situated in front of the doors waiting for Sam to enter the building and possibly exit.

We'll find out. This hearing was one of several that have happened since he was arrested last December. One of the most powerful people in the cryptocurrency industry, Sam Bankman-Fried, arrested overnight in the Bahamas. This arrest is really the first concrete move by regulators to hold someone accountable for the multi-billion dollar implosion of FTX last month. The federal charges just unsealed.

They include wire fraud, securities fraud, and intent to defraud the United States government. Bankman Freed, also known as SBF, is facing seven charges of fraud for his role in FTX's collapse. He has pleaded not guilty. While awaiting trial, he's been living with his parents under house arrest in Palo Alto, California, under strict conditions. His movements, internet use, and communications are all restricted. And prosecutors accused him of violating those conditions. Last week, in a Manhattan courtroom, the judge agreed. He revoked SBF's house arrest and sent him to jail ahead of his trial. How bad is that less than two months before his trial starts?

It's not ideal, certainly from his lawyer's perspectives. To see a defendant have their bail revoked is very, very unusual. But this is Sam Bankman Freed, and nothing usual ever seems to happen where reporting on him is involved. Welcome to The Journal, our show about money, business, and power. I'm Kate Leinbaugh. It's Monday, August 14th. Coming up on the show, why Sam Bankman Freed has been sent back to jail.

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dinner again, don't overthink how you hydrate. Life's full of choices. Smart Water Alkaline is a simple one. After Bankman Freed's arrest in the Bahamas, he was brought to the U.S. His parents helped post his $250 million bail using equity from their house. And that is where SBF has stayed. What were the conditions of SBF's bail?

So originally, Sam's bail conditions were essentially just that he would be under house arrest at his parents' home on the Stanford University campus. And originally, the bail conditions were basically just, he is at their house, he doesn't leave, and that was kind of it. And then gradually, through the last eight months, those restrictions were tightened on a few different occasions, because Sam was doing things that made the judge very uncomfortable. One of the things SBF did was use a VPN, a virtual private network. In December, he used what's called a VPN, which is basically just this computer program that lets you limit who can see what you're doing. It's kind of used just to make sure that your activities

online can't be monitored. And so there was an incident in late December where Sam used a VPN, and the government had no idea which websites he was accessing, what he was doing on those, and his defense said that he was just trying to watch, you know, National Football League NFL programming. But the government said, you know, the defense can claim he went on football websites, but we can't actually prove that. And so this was kind of the first thing that really bothered the judge.

Tell us about who the judge is in this case. So the judge is Lewis Kaplan. He is in his late 70s. He has a no-nonsense meter, I think, where he's very tough and he wants to make sure that things are done very properly. In January, prosecutors came back to the judge again over what they said was another violation. They said SBF used an encrypted messaging app to contact a potential witness, an FTX lawyer. And Sam wrote, quote, I would really love to reconnect and see if there's a way for us to have a constructive relationship, use each other as resources when possible,

or at least vet things with each other. The government, in response to that, was like, this is him trying to encourage the witness to potentially change their testimony, to potentially intimidate them into making sure all of the information that Sam is saying is going to match up with what they plan to say. And so the government had immediate alarm bells that rang from this. Defense lawyers have argued that SBF was offering to help the witness. In March, the judge sided with prosecutors. And so after that, there was a bunch of stricter bail conditions imposed, basically saying Sam can't use a VPN, Sam can't use encrypted messaging apps like WhatsApp or Signal is a common one. And basically that Sam can only go to these couple of dozens of websites and like starting to heavily curtail what he could do. Then in July, SBF was accused of stepping over the line again. The New York Times published a story related to a key player in the case,

Caroline Ellison. She pleaded guilty to seven charges and is working with the prosecution. Ellison had long ties to SBF. She ran a trading firm connected to FDX called Alameda Research, and she was his former girlfriend. The New York Times published extracts from her diaries. And what did she write in these diaries? So in these diaries, she was talking about how she felt a little bit underqualified, how she had anxieties about working with Sam and navigating the course of that breakup, while at the same time also running this very big trading firm. And that was kind of the crux of the story. It was basically just, these are some of the private writings of Caroline.

Here are the insecurities she felt. And that was the story that the Times ran. The day after the story published, prosecutors accused SBF of leaking the diaries to the Times. The government complained to the court and they said, we believe that Sam provided those documents to the New York Times and is trying to intimidate the government's witness. Was there any proof that SBF had supplied the diaries to the New York Times? Not any direct proof. Direct proof.

So as one of the added bail conditions, anyone who visited Sam at his home needed to sign in. They needed to provide their name. His calls and his emails going in and out were monitored by the government. And so the government knew who he was speaking to. And one of the people he was speaking to was one of the Times reporters who wrote the Ellison story. But in terms of the activities of people when they were in his home, they didn't necessarily know what happened there.

And so the government was saying they believed it was Sam, although at the time they couldn't prove it. How did SBF's lawyers respond? His lawyers basically admitted that he showed diaries to the New York Times. What? They admitted that SBF had shared these diaries? Yes. In court, his lawyers said that Sam had met with one of the reporters on the story and that he had showed, like, at least one document to the New York Times. And his lawyers contested that he was the only source on that story. The story also cited other officials who had spoken.

And so they claimed, you know, he wasn't the only one, but they did say that he met with the reporter and showed them the diary. Okay, so they're admitting that he had shared the diary. What was their defense of that action? Their defense of that action was that under the First Amendment, people who are alleged to have done crimes are allowed to provide comment and defend their reputation. And they argued that that's what Sam had done. And they said, if anything, argued that that's what Sam had done. And they said, if anything, the article that came out was sympathetic to Caroline, that it was yet another negative media article in a very critical news cycle of their client. And so they were saying, we can modify the bail conditions further. How did prosecutors respond to that?

How did prosecutors respond to that? Not well. The prosecutors responded that, you know, there's the right to defend your reputation. And so we're not infringing on his right to engage with the press. He has done that in spades, and we've had no issue with that up through now. Our issue is in the contents of the writings that he has shown to The New York Times. In a letter to the court, the Times said it's in the public interest that SBF and witnesses be allowed to speak to the press. So prior to Friday, Sam Bankman Freed had come before this judge and been given a little bit of a talking to. Sam Bankman-Fried had come before this judge and been given a little bit of a talking to.

Yeah, even two weeks ago in a prior hearing, the judge kind of like imparted on Sam at the end the significance of everything, saying that Sam should take it seriously. And this judge has seen Sam a lot ahead of this trial and his patience is wearing. seen Sam a lot ahead of this trial and his patience swearing. And then on Friday, the judge's patience ran out. That's next. With Smartwater's pure, crisp taste, there's nothing to overthink. So while you may be spiraling over double texting your crush,

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We were waiting outside the courtroom. He comes up with his lawyers, and I think my first thought was, oh, my God, did Sam get a haircut? And that seems like such an insignificant detail, but, like, you read into all sorts of body language when you're, like, trying to figure out what the defense thinks could happen.

Right. And so we go in. Sam sits down with his counsel. His parents are sitting behind him to the right, and I'm sitting off toward the left. And so we're in this, like, brown wooden courtroom, and the judge comes in. courtroom, and the judge comes in, and it's clear kind of from the start that he is just kind of done with all of these incidents with Sam out on bail. The prosecution and the defense made their arguments. Then Judge Kaplan began reading out his decision. Describe SBF at this moment. describe SBF at this moment?

Sam, through the course of this, was very fidgety. In the prior court hearing, he wasn't quite as much so, but it was about 20 or 30 minutes in that I noticed he had this piece of paper in between his hands, and he was kind of folding it over and over and over again.

In the end, Judge Kaplan revoked SBF's bail and sent him to jail to await his trial in October. The courtroom itself is relatively quiet, except for his mother, who is very emotional at this point. She's crying a little bit, and once the hearing is over and the U.S. Marshals are going to handcuff her son, she tries to make a break to go to him. And the U.S. Marshals quickly tell her she needs to step back. But she was very emotional after that happened.

And what was happening with Sam? after that happened. And what was happening with Sam? Sam was relatively stoic and kind of going through the motions of preparing to go to jail. He was taking off his jacket, he was taking off his tie and his shoelaces and handing those to his lawyers.

Did he get handcuffed? He got handcuffed just after the press were kind of shooed out of the courtroom. So he's currently at the Metropolitan Detention Center in Brooklyn, a facility that the judge at one point quipped was on nobody's list of five-star facilities. What impact might this have on his trial in October? I mean, for one, it could end up pushing it back. There's a lot of discovery to be sifted through. Sam's lawyers have said that they really need him available to go over a lot of things with him.

And what's next? So Sam's lawyers are going to appeal at the end of the hearing on Friday. They already tried to get the judge to hold off on actually sending Sam to jail until they could appeal it, but the judge immediately denied that on Friday. And so now his lawyers are going to appeal probably sometime in the next two weeks. And the judge essentially wished his lawyers luck on appealing it. So we'll see how the second court of appeals. What do you mean? The judge was basically like, I've been wrong in the past.

You're welcome to try and appeal. But I think I'm pretty solid on this one. And so his lawyers are going to appeal. And at least the judge believes that, you know, they have their work cut out for them. And what did this hearing on Friday say to you about what his trial is going to be like? Honestly, like, it tells me that his trial is going to be very messy. It's not going to be the straightforward, what you would typically expect to play out in court type event. I mean, typically when you have a defendant allegedly having committed a bunch of

crimes, there's a playbook for what they do before a trial starts. And Sam has broken just about every single one of those conventions. And his trial is due to start on October 2nd? Yes, October 2nd is the start of the trial currently. Which you'll be covering for us, for our show. Yes, I will be in the courtroom every day watching this all unfold. Amazing. That's all for today, Monday, August 14th. The Journal is a co-production of Gimlet and The Wall Street Journal. Additional reporting in this episode from James Finelli and Corinne Ramey.

Thanks for listening. See you tomorrow.