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Sam Bankman-Fried’s Arrest Puts his Parent’s $4 Million House in Jeopardy

Published August 15, 2023 2:13 PM
Teuta Franjkovic
Published August 15, 2023 2:13 PM
Key Takeaways
  • Bankman-Fried, as for now, didn’t pay any cash whatsoever for his “$250 million bond”
  • Bankman-Fried’s parents committed to using their Palo Alto, California home as collateral
  • The house is rumored to be valued at $4 million, and this was the sole collateral pledged for the $250 million bond.
  • SBF is spending his fourth night at NY Metropolitan Detention Center after Judge Kaplan revoked his bail on August 11

Sam Bankman-Fried, the former CEO of FTX, spends his fourth night  in one of New York’s most notorious jails among over 1,500 other inmates, a far cry from his parents’ lavish five-bedroom mansion in California.

At a hearing on August 11, Judge Lewis Kaplan revoked the bail of the FTX co-founder and said that the Brooklyn Metropolitan Detention Center was “not on anybody’s list of five-star facilities.”

But, what of his $250 million bond, or at least his parent house which served as collateral?

The MDC is a federal administrative detention center in New York City. It is an all-gender facility accommodating individuals under federal custody. The facility currently houses over 1,500 inmates but was only built to accommodate 1,000.

Bankman-Fried is expected to spend at least the next two months at the facility as he awaits his criminal trial, though his lawyers have already filed an appeal to have his bail revocation revised.

What Happens With $250,000 Bond?

In December last year, Sam Bankman-Fried exited federal court seemingly unencumbered by legal constraints.

During that period, media outlets worldwide reported that Bankman-Fried’s release from incarceration hinged upon a record-breaking “$250 million bond.” This bond was touted as the most substantial pretrial bond ever recorded, as highlighted  by Assistant US Attorney Nicholas Roos during his court statements.

However, delving into the details uncovers a more nuanced reality behind the “$250 million bond.” It turns out that the apparent value is not entirely representative of the situation.

In the context of a typical federal case, a bail bondsman might typically request a fraction ranging from 10% to 15% of the bail amount in order to issue a surety bond, commonly referred to as a “bail bond.” Applying this percentage to the $250 million figure results in $37.5 million – this is the sum that would have been expected for Bankman-Fried’s substantial bond. However, Bankman-Fried did not provide $37.5 million as payment for securing his bond. Contrary to appearances, he did not make any cash payment for the so-called “$250 million bond.”

MetaLawMan did not immediately respond to a request for comment

An alternative approach to acquiring a bail bond exists: a defendant or a representative can pledge collateral amounting to the bond’s full value.

This pledged collateral would then be forfeited to the court if the defendant fails to appear for their court proceedings. In Bankman-Fried’s case, securing the bond would have necessitated someone stepping forward and committing assets worth $250 million. However, neither of these scenarios unfolded.

Instead, Bankman-Fried’s parents offered their Palo Alto, California residence  – the same place where he would reside under house arrest – as collateral. Speculations indicate that the value of the Palo Alto property stands at approximately $4 million. This residence constituted the sole collateral furnished to guarantee the $250 million bond. No supplementary security arrangements were implemented.

Where Did the Purported $250M Originate From?

In this particular instance, Bankman-Fried was not obligated to adhere to the customary route of posting a conventional bail bond. Instead, his release was granted based on a type of bond termed “personal recognizance .”

This form of bond relied on Bankman-Fried’s commitment and his parents’ agreement to remit $250 million to the court should he fail to appear for trial as scheduled. This pledge formed the core of the personal recognizance bond.

In essence, Bankman-Fried’s signature on a document affirming his commitment to pay the court $250 million if he absconded from the country without undergoing extradition procedures effectively granted him his freedom upon departing the courtroom. Clearly, this situation presents a rather perplexing scenario.

However, even though the first couple of phrases  is accurate: “as a partial guarantee of the $250 million bail, his parents have consented to transfer title to the court of their $4 million Palo Alto home.”

Still, the real bond deal may contradict the last clause:

“2 non-parent sureties to sign bonds in lesser amounts to be agreed to”

This may be found on page 5 of the ‘Appearance Bond’  in all capital letters. This means it is untrue that “no other collateral was posted or agreed to,” at least not in accordance with the publicized agreement.

Potential Collateral Complications: Stanford Law School’s Involvement

While court documents did not explicitly state it, a significant twist emerges regarding the potential implications of Sam Bankman-Fried’s flight: Stanford Law School could find itself entangled in the government’s pursuit of collateral forfeiture.

This complex situation arises from the fact that Bankman-Fried’s parents, both faculty members at the school, lease the land  on which their home is situated. The 51-year lease agreement specifies that homes may only be sold back to Stanford or other eligible buyers, such as fellow faculty members.

This unique condition restricts the pool of potential buyers, consequently casting doubts on the property’s assessed value.

In response to this predicament, Stanford Law School has clarified that Bankman-Fried’s parents possess the right to employ their leasehold interest as collateral for the bond, mirroring their ability to encumber it with a mortgage.

This unforeseen connection underscores the intricate legal web woven around the collateral, potentially implicating the institution in a scenario that diverges from its academic pursuits.

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