Judge Signals Jail Time if Bankman-Fried’s Internet Access Is Not Curbed

Since his arrest two months ago, Samuel Bankman-Fried, the disgraced cryptocurrency executive, has been physically confined to his parents' home in Palo Alto, under the force of a $250 million bail.

But he has largely roamed the unrestrained nature of the internet: conducting interviews, posting narratives, making calls in encrypted apps and using a virtual private network, a web tool that allows users to hide data and visit websites without detection.

Those unrestricted days may be ending soon.

On Thursday, a federal judge overseeing Mr. Bankman-Fried's multi-million dollar fraud case signaled his willingness to jail him for his persistent testing of the limits of his confinement, going beyond what prosecutors had asked for.

"Why are you asking me to drop it in this garden of electronic devices?" the judge, Lewis A. Kaplan, asked prosecutors, describing the well-connected home of Mr. Bankman-Fried's parents, both professors at Stanford Law School.

No new conditions were set during Thursday's hearing, the latest of several hearings held in federal court in Manhattan, to consider more restrictive bail terms. Judge Kaplan asked both parties to prepare concrete proposals that would limit and monitor Mr. Bankman-Fried's Internet access without inhibiting his ability to participate in his defense.

Federal prosecutors in Manhattan accused Mr. Bankman-Fried of orchestrating widespread fraud at FTX, the cryptocurrency exchange he founded, accusing him of misappropriating billions of dollars of client money. Prosecutors said he used the funds to finance lavish real estate purchases, political contributions and investments in other businesses.

After being charged in December, Mr Bankman-Fried was released on bail with the requirement that he wear an ankle monitor and remain confined to his parents' home.

But almost since the beginning of his house arrest, Mr. Bankman-Fried has blogged about Substack and entertained visitors, including several journalists, at his parents' home. Late last month, federal prosecutors charged him with using the encrypted messaging app Signal to communicate with a potential witness.

Prosecutors asked Judge Kaplan to bar Mr. Bankman-Fried from using encrypted apps and to limit his ability to communicate with current and former FTX employees. Thursday's hearing was the second time in a little over a week that Mr. Bankman-Fried had to fly to New York from California at his expense to attend a hearing on his bail terms.

On February 1, Judge Kaplan ordered him to stop using encrypted apps while he weighed the issues. Eventually, however, prosecutors reached a deal with Bankman-Fried's lawyers that would have barred her from using some apps and explicitly allowed others.

But at a hearing last week, Judge Kaplan said he was not convinced that such arrangements would completely prevent Bankman-Fried from secretly communicating with the outside world.

Then, on Monday, prosecutors said in a court filing that Bankman-Fried had twice used a virtual private network, or VPN, to gain Internet access. His lawyer said he had used the VPN to watch National Football League playoff games, including the Super Bowl, through an international streaming subscription he bought when he lived in the Bahamas.

At Thursday's hearing, Judge Kaplan was skeptical of this explanation, noting that Mr. Bankman-Fried lived in “California, which is in the United States,” and was able to watch the Super Bowl on television.

But Judge Kaplan reserved his most pointed questions of the afternoon for the government. He interrupted a prosecutor, Nicolás Roos, as he presented ideas that would broadly limit and control Bankman-Fried's access to the Internet and communications technology.

“There is a solution,” said the judge. "But it's not one that anyone has proposed yet."

Mr. Roos gave a hesitant response before Judge Kaplan went on to say that, by the government's own account, Mr. Bankman-Fried had done things that suggested he "committed or attempted to commit a federal crime while at large." .

Judge Kaplan said that even if he agreed to the government's suggestion to monitor Mr. Bankman-Fried's cell phone and computer, that would not prevent him from using other unmonitored computers and phones in his parents' home.

Judge Kaplan noted that the hearing was not called to consider revoking the bond, "but it could possibly get there."

A Bankman-Fried attorney, Mark S. Cohen, called the government's proposal "draconian" and said it would prevent his client from investigating or seeing evidence. He also denied that Mr. Bankman-Fried had committed any wrongdoing or attempted to tamper with witnesses.

He also said that his client would argue that using a VPN did not violate the terms of his release, because it was not an encrypted messaging service.

Mr. Bankman-Fried's initial bail package required him to post a $250 million bond. But he didn't actually have to pay any money: The bail was secured by his parents' $4 million home, as well as a much smaller amount of collateral provided by two of his parents' colleagues: Larry Kramer, a former law school dean from Stanford. and Andreas Paepcke, a Stanford research scientist.

The identities of Kramer and Paepcke were kept secret until Wednesday, when Judge Kaplan released their names at the request of a dozen news organizations, including The New York Times.

In theory, Mr. Kramer's parents, Mr. Paepcke and Mr. Bankman-Fried would be responsible for the funds they pledged if Mr. Bankman-Fried left.

At the close of the hearing on Thursday, Judge Kaplan asked both sides to come up with ideas for more restrictive conditions. He also suggested that he could bring in a technology consultant as a kind of paralegal, at the defense's expense.

Cohen said defense attorneys supported further restrictions.

“We understand from your comments today that there is no margin for error,” he said. More violations, she said, and "we'll be in a very different proceeding."

matthew goldstein contributed reporting.