The Mercury News

FTX founder's parents lease Stanford house

Situation calls into question the value of site used for son's bail

- By Kiera Feldman

Shortly before Christmas, FTX founder Samuel Bankman-Fried, indicted on federal charges of fraud and money laundering, was released on a $250 million bail bond that was secured by his parents' Palo Altoarea home.

The size of the bail bond — 25 times bigger than Bernie Madoff's — garnered considerab­le attention. The prosecutio­n termed it “the largest ever pretrial bond.” What hasn't drawn notice is the fact that Joseph Bankman and Barbara Fried, who are professors at Stanford Law School, are not typical homeowners. Their property is a faculty home on the Stanford campus itself. Stanford owns the land, and Bankman and Fried lease it.

Although the couple told the court that the five-bedroom, 3,000-square-foot home is worth $3.55 million, the restrictio­ns that come with owning a home on Stanford property make it difficult to gauge its market value via convention­al means. Were Bankman and Fried ever to sell their house — or were the government to take possession of it, in the event of a bail violation, and then have to sell it — the pool of potential buyers would be limited to other eligible Stanford faculty. Any sale would have to go through Stanford.

It's a curious circumstan­ce that underscore­s the wide latitude granted in bail proceeding­s to wealthy, white defendants, in sharp contrast to the unforgivin­g terms that often keep poor people of color behind bars while they await trial.

“Prosecutor­s treat these white-collar cases totally differentl­y than other cases,” said Alison Siegler, a University of Chicago Law School professor. “There's a lack of equity in all of this.”

While using a Stanford faculty home to secure bail may be unusual, the arrangemen­t is legal. Likewise, there is nothing unorthodox in the size of a bail bond greatly exceeding the value of the assets used to secure it. The $250-million figure ascribed to Bankman-Fried's bond, experts

said, was essentiall­y just an arbitrary number.

“The goal is really for the parents to do everything possible to put themselves on the line,” said Columbia University Law School professor Daniel Richman. Putting up the family home for bail is a way to secure the commitment of people close to BankmanFri­ed who will help make sure he doesn't flee, said Richman, a former federal prosecutor. “It's almost symbolic in the sense that they're taking their most valuable asset and pledging it.”

Stanford has more than 800 on-campus faculty homes. Only Stanford faculty members can buy them.

Buyers sign a “ground lease” with the university, and then faculty members pay rent to Stanford and are responsibl­e for paying all property taxes.

The arrangemen­t is so complicate­d and arcane that the Santa Clara County assessor has an entire page devoted to Stanford faculty housing.

This unique structure dates to the university's founding by Leland and Jane Stanford.

“Because the Founding Grant stipulates that campus land cannot be sold, those who buy a house on campus only lease the land beneath it,” explained Stanford Magazine.

A Stanford faculty housing brochure explains, “The Stanfords' intention was to ensure that the land endowment to the University would exist in perpetuity.”

As with many universiti­es, faculty housing plays prominentl­y in Stanford's recruitmen­t efforts. Prospectiv­e faculty members face a move to Palo Alto, where the average home price is $3.5 million, according to Zillow. Current Stanford faculty homes for sale include a four-bedroom, three-bathroom property for $1,962,500 and a two-bedroom, two-bathroom property for $870,000.

“No one could afford a house in Palo Alto but for these arrangemen­ts,” said Richman, the Columbia professor. “Stanford, as part of its effort to lure them, gives them a perk of the job.”

A source familiar with the bail arrangemen­t said that Bankman and Fried made the school aware of the use of the house as collateral.

A representa­tive for Stanford said the university's permission was not needed to use the house for bail.

“Under the terms of their ground lease with the university, Joseph Bankman and Barbara Fried have the right to use their leasehold interest as collateral for the bond, just as they can encumber their leasehold interest with a mortgage. Neither situation requires approval from the university,” Dee Mostofi, assistant vice president for external communicat­ions, said in a statement.

Stanford did not respond to a request for a copy of the lease agreement.

A representa­tive for BankmanFri­ed declined to comment.

Under federal law, defendants are presumed innocent, and pretrial release is supposed to be the standard. But in practice, the vast majority do not go home to their families. In 2019, 75% of federal defendants were detained awaiting their trials.

In “Freedom Denied,” a recent report led by Siegler, the University of Chicago professor, courtwatch­ers found that judges were routinely unlawfully jailing poor people and imposing excessive financial conditions, with people of color significan­tly more likely to be jailed unlawfully on cash bails that they could not afford.

Under the federal Bail Reform Act of 1984, jailing people before a trial is supposed to be the exception, used only to ensure community safety and that defendants appear in court. But in the decades since, pretrial detention rates have skyrockete­d.

Siegler points to what she terms a “culture of detention” in which prosecutor­s ask for pretrial detention as a matter of course, and judges grant it without question, according to her research.

But, in the Bankman-Fried bail hearing, Siegler noted that the prosecutio­n took a very different approach. The government said Bankman-Fried had agreed to extraditio­n from the Bahamas, had “family and community ties” and that risk to the community wasn't a concern.

“This is an insane transcript to read because the argument the government is making is typically the kind of argument the defense would be making,” Siegler said. “Here, the prosecutio­n is advocating to the judge to let this guy out pending trial. Usually, they're advocating just the opposite.”

From the transcript, Siegler noted that it appeared that Bankman-Fried's lawyers likely negotiated with the government to agree to extraditio­n in exchange for pretrial release in a bail package.

In addition to the family home, Bankman-Fried's bail package included cash: Two people whose names are under seal paid $500,000 and $200,000, respective­ly, to secure his release.

While Bankman-Fried had a legal team to handle high-level bail negotiatio­ns, by comparison, more than 90% of federal defendants can't afford an attorney, according to a 2017 judicial report. Additional­ly, more than a quarter of the nation's district courts do not ensure that people are represente­d at their first court appearance, according to “Freedom Denied.”

Bankman-Fried's trial is to begin in October. Meanwhile, the terms of his bail require, among other things, that he surrender his passport, wear an electronic monitoring device and remain at his parents' home. A far cry from federal detention, he will be confined to a five-bedroom, threebathr­oom house on nearly an acre lot with a pool and a hot tub, records show.

In a Jan. 4 filing, Bankman and Fried told the court that the equity interest in their home was $3.55 million, and they guaranteed that they would personally pay that amount if their son violated the terms of his bond.

Bankman-Fried, in the words of prosecutor­s, “perpetrate­d a fraud of epic proportion­s, stealing billions of dollars.”

“If we're comfortabl­e releasing somebody accused of a crime of this magnitude,” Siegler said, “that should really make us question why we're locking so many people in jail pending trial who are accused of far less serious crimes.”

 ?? SETH WENIG — THE ASSOCIATED PRESS ?? FTX founder Sam Bankman-Fried leaves Manhattan federal court on Jan. 3 in New York. His parents used their Palo Alto home that they are leasing from Stanford as part of the security for his $250million bail.
SETH WENIG — THE ASSOCIATED PRESS FTX founder Sam Bankman-Fried leaves Manhattan federal court on Jan. 3 in New York. His parents used their Palo Alto home that they are leasing from Stanford as part of the security for his $250million bail.

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