The Curious Timing of Sam Bankman-Fried’s Arrest

I confess to being perplexed by the arrest of Sam Bankman-Fried on Monday night.

I’m not perplexed by the fact of it — as Rich Lowry and I discussed in recent episodes of The McCarthy Report, when billions of dollars in investor funds go poof, the Justice Department routinely files charges, so it would be surprising if there were not an indictment in SBF’s case. Moreover, the Biden administration’s progressive regulatory enthusiasts, very much including those on Gary Gensler’s Securities and Exchange Commission, have been spoiling for an opportunity to end crypto’s free-wheeling, Wild West era. Although, to my mind, FTX runs against the grain of what crypto-currencies aim to achieve, its implosion is the perfect pretext for a regulatory push.

No, instead what puzzles me is the timing.

The now-notorious SBF was slated to testify on Tuesday at a hearing of the House Financial Services Committee, with fireworks anticipated to result. It is highly unusual for a suspected fraudster who knows he is under investigation to make public statements explaining himself — especially when his very-prominent lawyer parents are presumably pleading with him to exercise his constitutional right not to help prosecutors build a case against him. Good defense lawyers advise even clients they believe are innocent to remain silent, at least until charges are filed and discovery begins. Having access to the charges and the Justice Department’s prosecutorial theory, along with information about what the witnesses and documents say, enables defense counsel to gauge the strength of the government’s case, and potentially trade testimony for leniency.

Consequently, if you were a prosecutor from the Southern District of New York (SDNY), the U.S. attorney’s office that has filed the charges against SBF, you would be delighted that your defendant has been ignoring sound advice and making public statements for weeks. You would, moreover, have been salivating at the prospect of his being grilled under oath for hours by grandstanding Congresscritters.

So why, on the eve of the House hearing, would the SDNY suddenly mobilize to arrest SBF, knowing this would inevitably abort his testimony? Plainly, there was no great rush to apprehend him. SBF has remained at liberty and talking very publicly in the month since the FTX collapse. Plus, if he were testifying before Congress, even by remote transmission, his whereabouts would be known, providing prosecutors an assurance that he was not poised to flee to a country from which it would be hard to extradite him. Why wouldn’t the Biden Justice Department wait a day or two, then, to give SDNY prosecutors the benefit of wide-ranging testimony that could be used against SBF — both in the criminal proceedings and in the SEC’s civil lawsuit, which like the indictment was made public Tuesday morning?

One obvious possibility, for the cynical among us, is that the Democrats who run the House Committee (which is led by firebrand lefty Maxine Waters of California), were loath to abide Republican harangues about SBF’s prodigious political contributions to Dems, whose regulatory enthusiasm he echoed, making him the bane of his crypto competitors’ existence. SBF reportedly donated about $40 million to Democratic candidates and PACs, making him second only to George Soros in Democratic contributions in the just-concluded midterm cycle. The committee majority may not have relished giving Republicans a chance to spotlight the fact that prominent Democrats received lavish contributions from SBF of what now appears to be stolen money, while the investors who provided the money — and had no idea it was being donated to politicians — lost their shirts.

If this were the reason for the sudden arrest, it would not be the first time the Democrats who run the Justice Department accommodated the whims of congressional Democrats. But is it the reason? There are reports that SBF, despite being a progressive darling until the recent contretemps, also donated heavily to Republicans — although he says he did it through “dark money” vehicles because these are less public and thus less apt to draw the ire of the media–Democrat complex. (The Guardian reports SBF’s elaboration on the claim that he gave more or less equally to both parties: “‘All my Republican donations were dark,’ he said, referring to political donations that are not publicly disclosed. ‘The reason was not for regulatory reasons, it’s because reporters freak the f*** out if you donate to Republicans. They’re all super liberal, and I didn’t want to have that fight.’” It has been reported that SBF’s associate Ryan Salame, an executive at FTX Capital Markets, donated about $23 million to Republicans and GOP PACs.)

While we await an explanation for the timing of the arrest, there are some suggestions that SBF will try to fight extradition from the Bahamas. Perhaps he will, but it is unlikely he’ll be successful if he does. The Bahamian authorities have good relations with their American counterparts.

As this column was being finalized, the Manhattan federal district court unsealed, and SDNY prosecutors publicly released, the eight-count indictment, which while it was still under seal had been the basis for the issuance of an arrest warrant for SBF, and for his detention by authorities in the Bahamas (where he also faces charges).

The indictment charges SBF with the sorts of federal offenses you’d expect to find in the case of a big swindle: wire fraud against customers and lenders and conspiracy to commit it, securities- and commodities-fraud schemes, and money laundering — the last of which will turbo-charge any potential prison sentence. The indictment also alleges that the defendant defrauded the United States by flouting campaign-finance laws, which limit corporate contributions and require disclosure of donation sources. (There is also a hefty forfeiture provision on the books, though there may not be much left for the government to claw back at this point.)

At this early stage, the conspiracy counts are the most notable thing about the indictment. As a matter of law, a person cannot conspire alone — it take two (at least) to tango, as they say — yet SBF is the only person named in the indictment. This suggests that more people will be charged as the investigation continues. Indeed, the Justice Department may already have gotten cooperation from potential coconspirators, such as other officers in SBF’s maze of corporate structures, who could enter guilty pleas in due course.

Clearly trying to elbow in front of DOJ’s big indictment announcement, the SEC released its civil lawsuit against SBF, also filed in the SDNY, early Tuesday morning. It alleges that SBF engaged in a years-long fraud, diverting the funds of investors in FTX to support his crypto hedge fund, Alameda Research, and for personal expenses: venture-capital investments and real-estate purchases. Oh, and political contributions, too.

Stay tuned.