Sam Bankman-Fried’s esteemed Stanford parents face their own reckoning

As Joe Bankman and Barbara Fried sat in a Bahamian courtroom Tuesday, the popular Stanford law professors had to be worried about more than whether their FTX founder son, Sam Bankman-Fried, will go to prison for orchestrating what a federal prosecutor described as “one of the biggest financial frauds in American history.”

The couple also have to be concerned about their own legal jeopardy, a criminal law expert said, given reports that they were involved, at some level, in their son’s efforts to build his allegedly fraudulent cryptocurrency exchange into a $32 billion business. They face scrutiny on multiple fronts over whether they were complicit in the alleged crimes that led to the company’s spectacular collapse.

“I can’t imagine a world where Bankman-Fried’s parents were not his financial and legal advisors,” said Matthew Barhoma, a criminal defense and appellate attorney who is based in Los Angeles.

It could get especially ugly for the couple, who are accustomed to a privileged life in high-minded academia. If prosecutors and the FBI want to play hardball, they could try to force Bankman and Fried to cooperate with the investigation and to testify against their beloved son.

“I think prosecutors will try to use the parents against their son,” Barhoma said. “The parents of a defendant do not enjoy anything similar to the marital privilege that protects a person from having to testify against their spouse.”

No evidence has emerged yet to link Bankman and Fried to their son’s alleged crimes, and their level of legal culpability depends on their knowledge of the alleged fraud, Barhoma said.

“Nevertheless, it’s likely that some level of responsibility falls on his savvy, sophisticated parents,” Barhoma said. Among other things, it’s been reported that they influenced their son’s narrative about using crypto to do good in the world. Barhoma said they could have encouraged his recent public statements about making “a lot of mistakes,” but never knowingly committed fraud.

Bankman-Fried was arrested in the Bahamas Monday and charged with eight criminal counts, including wire fraud, money laundering, conspiracy and violation of campaign finance laws. The Securities and Exchange Commission also filed civil charges accused him of diverting billions of dollars invested by FTX customers into his private hedge fund, Alameda Research, allegedly to finance a lavish style, buy up luxury property and donate to political candidates in order to influence public policy.

The mop-haired entrepreneur appeared Tuesday in court in Nassau, the capital of the Bahamas, as his parents looked on. He was denied bail by a judge who deemed him a flight risk and will next appear in court in February. It’s been reported that he may fight extradition to the United States.

The New York Times reported that Bankman and Fried flew to the Bahamas last month to support their son amid FTX’s collapse. The question of possible charges against the parents was among the first asked at a press conference held in New York City and live-streamed. Damian Williams, the U.S. Attorney for the Southern District of New York, emphasized that the “investigation is very much ongoing and is moving very quickly.” He declined to say whether Bankman and Fried could face charges but replied, “I can only say this clearly. We are not done.”

It also was revealed on Tuesday that FTX is investigating the role that Bankman and Fried played in the company’s implosion. Testifying before the House Financial Services Committee Tuesday morning, John J. Ray, who took over as CEO after the company declared bankruptcy and Bankman-Fried stepped down, said Bankman had provided legal advice: “He received payments … the family certainly received payments.”

Ronald G. White, a prominent criminal defense attorney identified by the New York Times as representing Bankman, did not respond to queries asking whether he or his wife are concerned about being charged. Risa Heller, the couple’s spokesperson, also did not respond to a request for comment. In a Dec. 1 interview with the New York Times, Bankman-Fried insisted that his mother and father “bore no responsibility” for the collapse of FTX.

While watching their son in a Nassau courtroom, Bankman and Fried’s expressions shifted between “dejection and defiance”; at times they held their heads in their hands, and Fried let out a laugh when her son was called “a fugitive,” according to cryptocurrency site CoinDesk. It’s certainly a scenario the couple never could have imagined, given the rarified, philosophically correct world they sought to create after joining the Stanford Law faculty in the 1980s.

As Puck reported, Bankman and Fried were “obsessed” with ethics. Bankman was known for his expertise in tax law, while Fried was acclaimed for her scholarship in law and philosophy. Fried’s writings on “effective altruism” may have influenced her son to brand himself as an entrepreneur who uses data to maximize the benefits of philanthropy, according to the New York Times.

The couple raised their precocious son in a ranch house in the middle of Stanford’s campus, where they emphasized the importance of “analytical rigor, civic-mindedness and, crucially, consequences,” Puck writer Theodore Schleifer said. The couple were known for their Sunday night dinner parties, where the discussion revolved around ethical issues, politics, science and literature.

As Bankman-Fried launched FTX, Bankman and Fried were “more than just supportive parents,” the New York Times said. Bankman helped FTX hire lawyers, regularly traveled to the Bahamas, consulted on tax-related matters and advised his son on his testimony before the House Financial Services Committee. Bankman also focused on FTX’s charitable operations, helping to push the narrative that his son wanted to use crypto to help low-income people gain a foothold in financial markets.

Fried was not an FTX employee, but her son was among the donors to Mind the Gap, a highly successful political advocacy network that she orchestrated, according to the New York Times and Puck. It’s not clear how much Bankman-Fried was involved in Mind the Gap, but at one point he told Schleifer that he was a “consultant,” something the organization denied.

Another possible area of concern for Bankman and Fried is FTX’s Bahamian “real estate empire,” as the New York Post reported. In bankruptcy court, the company’s new leaders accused him and his allies of using company resources to purchase $300 million in luxury real estate on the island, Reuters reported. Bankman and Fried’s names appear on real estate documents for one of the properties, a $16.4 million house in a gated community in Nassau, the capital of the Bahamas, Reuters also reported.

Heller, the spokesperson for Bankman and Fried, told the New York Times that the couple “never intended to and never believed they had any beneficial or economic ownership of the house.”

Whether or not Bankman and Fried face criminal charges, they already are experiencing the dire consequences of being the parents of someone who’s been compared to Bernie Madoff. Fried resigned last month as chair of Mind the Gap, while Bankman postponed a Stanford class he had been scheduled to teach this winter, the New York Times said. The family also faces huge legal bills, with Larry Kramer, a close family friend and former law school dean, saying, “I don’t see how this doesn’t bankrupt them.”