Pretty sure what he meant by Tsubaki being arrested to be "set free" was to get away from Nagisa.
Nagisa seems to be be blackmailing Tsubaki by threatening her with the safety of her friends. So her bullying and isolating them was Tsubaki showing them kindness because if she's the one orchestrating the bullying, she could control the level of cruelty to some extent.
As for what the blackmail is, Nagisa being the only other witness besides Tsubaki covered for her and put her in her debt. Therefore, Tsubaki has in all respects, become her slave. Additionally because of Tsubaki's social status, it's difficult for her to be caught/punished since her family manages to get every issue swept under the carpet.
At some point Tsubaki got tired of Nagisa's shit and began actively trying to get caught, which by extension meant that her methods became more extreme/flashy so it'd become difficult for even her family to to get her off scot-free.