The Theater of Sam Bankman-Fried’s Catch and Release

W hat may be even more interesting than the implosion of the cryptocurrency exchange FTX is the government’s choreography of the case against its founder, Sam Bankman-Fried.

Unquestionably, the noose is tightening around the 31-year-old erstwhile wunderkind known as SBF. When you’re charged with multiple felony-fraud counts that, combined, could land you well over 100 years in the slammer, and you arise from your jailhouse slumber only to find that your two main accomplices have pled guilty and are spilling the beans to prosecutors, well . . . it’s just not going to be a good day.

Looking on what little bright side there may be for SBF, though, he’s probably had worse stretches over the last few weeks. On Wednesday evening, he was being moved from his Bahamian captivity to custody in the United States when Damian Williams, the Biden-appointed Manhattan U.S. attorney, announced that his office, the Southern District of New York (SDNY), had struck plea bargains and cooperation agreements with SBF’s colleagues, Caroline Ellison and Gary Wang. But by Thursday afternoon, SBF was winging home to mom and dad for the holidays, a free man — or at least as free as he is apt to be for the next decade or four.

We discussed this bit of farce on the Corner, probably around the time SBF’s plane was touching down near his Stanford law-prof parents’ Palo Alto manse, where he will be on something loosely akin to house arrest for the next few weeks.

Two things are at play here.

The first is that, as we’ve detailed, the Justice Department is engaged in Biden’s signature “big f***ing deal” inflation. The SDNY got SBF to agree to sign a $250 million bail bond so it could portray the FTX fiasco as the biggest financial fraud in the history of the planet — but he did not have to post anything remotely close to that amount in collateral. DOJ might as well have claimed that he was on the hook for underwriting this week’s scandalous $1.7 trillion bipartisan budget blowout. To get sprung from custody, he would happily have signed a bail bond covering our $31 trillion national debt if the SDNY had told him to — and the resulting promissory note would have been about as real as the notion that FTX was once worth $31 billion. To be clear, I really don’t think SBF is going to flee. The fugitive’s life calls for a degree of derring-do and attention to detail that are, as his current predicament suggests, beyond him. But if he does take off, the amount he forfeits to Uncle Sam will be a lot closer to $250 than $250 million.

The second thing is mildly hilarious when you think about the Democratic-darling progressive prosecutors and their crusade against cash bail. SBF could have fought his extradition. He would have lost in the end, and it would have meant additional weeks or months of increasingly uncomfortable confinement (it may be “better in the Bahamas,” but not in the custody of the Bahamas Department of Correctional Services). But as it happened, the DOJ wanted his transfer for prosecution in Manhattan done rapidly, so he had some leverage. Clearly, the parties cut a deal in which SBF dropped his opposition to extradition and the SDNY agreed to put up only cursory resistance to his release on bail. Given that the DOJ has magnified the FTX/Alameda fraud scheme into the crime of the century — one in which countless investors have been fleeced of their life savings — and given that people such as the late Bernie Madoff have been sentenced to over a century of incarceration for such schemes, it would have been a bad look for the DOJ to let SBF out for a chintzy $10 million, the amount of Madoff’s bond in 2008. So now prosecutors get to say SBF had to put up $250 million to be released, when in reality, he didn’t have to put up anything close to that. Prosecutor Nicholas Roos crowed that it was “the largest ever” pretrial bond. On paper, perhaps, but not in reality. What it was, though, was an instance of the “system” (run by Democrats) letting a rich white guy (a Democrat) who donates lots of money to (mostly Democratic) politicians buy his way out of custody (i.e., cash bail, the bête noire of “everything is racist” Democrats).

Messrs. George Soros, Chesa Boudin, and Larry Krasner, please direct your complaints to the Honorable Merrick Garland, 950 Pennsylvania Ave., NW, Washington, D.C., 20530.

The theater of SBF’s catch-and-release follows the peculiar timing of his indictment, which was unsealed just as he was about to be grilled by a congressional committee. As we’ve noted, such testimony — hours of hostile questioning under oath — is the sort of thing a prosecutor would ordinarily do everything in his power to facilitate, not forestall. But — surprise! — SDNY prosecutors did forestall it, thus canceling hours of nationally televised Republican queries about SBF’s version of Robin Hood: robbing the rich to give to Democrats.

Chairwoman Maxine Waters, please direct your thank-you card to the Honorable Merrick Garland, etc., etc.

The guilty pleas were the final interesting twist in the case this week. Caroline Ellison, besides reportedly being SBF’s sometimes-girlfriend, was one of his business partners. Specifically, she was the CEO of Alameda Research, the firm to which he is alleged to have diverted FTX client funds and then to have exploited like a piggy bank for purposes of purchasing prime real estate and other luxury items, as well as insurance in the form of political donations. Gary Wang was FTX’s chief technology officer. Their guilty pleas cannot have been a surprise to SBF or anyone who read the indictment against him. Several of the counts accuse SBF of conspiracy, and it is black-letter criminal law that one cannot conspire alone, so there had to be coconspirators, and other charges had to be on the way.

As the SDNY’s press release related, Ellison pled guilty to seven counts and Wang to four counts. Many of these felony offenses carry sentences of up to 20 years, and the federal sentencing guidelines for ten-digit frauds are through the stratosphere (see, e.g., Guidelines Section 2B1.1). But when accomplices provide testimony that satisfies prosecutors, the latter may file motions that empower the judge to ignore the guidelines and impose a term of little or no prison time (see Guidelines Section 5K1.1).

Sadly for SBF, this requires having a bigger fish to hand prosecutors, and in this case, he himself is the biggest fish.

Here is the interesting part. As we explained last weekend, for all the chest-beating of the regulators, there are significant legal questions about whether the two relevant administrative agencies, the Securities and Exchange Commission and the Commodities Futures Trading Commission, have enforcement jurisdiction over cryptocurrencies. So what has the SDNY done? To get their bargains, both Ellison and Wang were required to plead guilty to conspiracies to commit securities fraud and commodities fraud — charges that are also alleged in the SBF indictment. As part of their cooperation, Ellison and Wang also agreed to settle the civil lawsuits brought against them by the SEC and the CFTC.

That is to say, while Ellison and Wang may have had legitimate legal objections to raise against the securities- and commodities-fraud charges, the two accomplices decided it was best to plead guilty and give the SDNY, the SEC, and the CFTC the wins they wanted. Ellison and Wang can already argue that they’ve provided “substantial assistance” to the investigation (the standard for the aforementioned prosecutors’ motion that would allow the judge to give them lenient sentences). The government wants precedents from which it can argue that of course current law empowers it to regulate cryptocurrency — even as it presses for new laws making that power explicit (not coincidentally, the kind of laws SBF was wining and dining politicians and regulators to enact — since in Gomorrah-by-the-Potomac, if you’re not at the table, you’re on the menu).

The concessions made by SBF’s alleged coconspirators are not legally binding against him. He can still mount legal challenges to the charges against him. He does, however, face the prospect of a trial in which his two closest confederates would take the stand and relate that they have pled guilty to the same fraud schemes of which he is accused, and that he joined them — indeed, led them — in the execution of those schemes. That is, SBF’s lawyers now face practical evidentiary challenges that dwarf whatever technical legal objections they can make.

Bernie Madoff pled guilty to all the charges against him, even though he was looking at 150 years in prison. That’s what usually happens when the billions go poof and the damning proof is overwhelming.