Judge on Bankman-Fried: 'Why am I being asked to turn him loose?'

NEW YORK, Feb 16 (Reuters) - A U.S. judge intimated on Thursday that Sam Bankman-Fried might deserve to be jailed pending trial after prosecutors suggested that the indicted FTX co-founder might have tampered with witnesses while out on bail.

At a hearing in Manhattan federal court, U.S. District Judge Lewis Kaplan challenged prosecutors on their willingness to let Bankman-Fried remain under house arrest with his parents, despite signs the former billionaire might have broken the law while out on $250 million bail.

The judge questioned whether prosecutors' proposal to largely ban Bankman-Fried's internet use went far enough, citing the risk he could use his parents' unmonitored devices.

"We are dealing with somebody, who ... has done things that suggest to me that there may very well be probable cause to believe that he either committed or attempted to commit a federal felony while on release," Kaplan said.

"Why am I being asked to turn him loose in this garden of electronic devices?"

Bankman-Fried, 30, has lived at his parents' Palo Alto, California, home since pleading not guilty to fraud charges stemming from FTX's collapse.

His parents, Joseph Bankman and Barbara Fried, are professors at Stanford Law School.

One of the prosecutors, Nicolas Roos, acknowledged that the government was not monitoring other devices in the home, but said having Bankman-Fried stay there was "a check against some other risks - risks that come from being unmonitored and by yourself."

The hearing came after prosecutors asked Kaplan to ban Bankman-Fried from using the internet except to review evidence against him or use email on his Gmail account, citing his use of a virtual private network (VPN) that could have let him hide some online activity.

Kaplan had already banned Bankman-Fried from contacting current or former employees at his now-bankrupt exchange and Alameda Research hedge fund, and from using encrypted messaging apps such as Signal that let users auto-delete messages.

Bankman-Fried's communications became an issue when prosecutors said he sought to contact FTX's current chief executive John Ray, and an in-house lawyer.

Defense lawyers have said the attempts to contact FTX officials were efforts to help, not interfere.

They also said Bankman-Fried's recent use of a VPN was benign -- to watch National Football League playoff games on a subscription he had bought while living in the Bahamas.

On Thursday, Bankman-Fried's lawyer Mark Cohen called prosecutors' proposal "draconian" and said it would make it difficult for his client to help build a defense.

He had proposed barring Bankman-Fried from using a VPN except to prepare for his defense, and letting him communicate by phone, email, SMS text messaging and Twitter direct messaging. His iMessage on his phone would be disabled.

Kaplan asked both sides to send him proposed orders for the new bail conditions next week.

FTX filed for Chapter 11 bankruptcy after customers raced to withdraw funds amid concerns about commingling of their deposits with Alameda assets. Bankman-Fried has acknowledged inadequate risk management, but said he did not steal any funds.

Reporting by Luc Cohen in New York; Editing by Matthew Lewis and Daniel Wallis

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Thomson Reuters

Reports on the New York federal courts. Previously worked as a correspondent in Venezuela and Argentina.