The fallout from the crypto controversy is widely spread — and it has hit both parties.
Back in May, months before Sam Bankman-Fried’s cryptocurrency exchange imploded seemingly overnight, he suggested that he might be willing to spend as much as $1 billion in political donations during the 2024 presidential election.
It was an astronomical sum to throw around — Bankman-Fried later called it “a dumb quote on my part” — but at the time, the crypto kingpin was still an object of curiosity rather than ridicule.
Billboards with his frizzy-haired visage popped up in Manhattan; journalists examined his growing political empire and his “schlubby” personal style. Endless articles were written about “effective altruism,” his utilitarian-tinged philanthropic philosophy. At one point, Forbes pegged his net worth as high as $26.5 billion; Fortune ran a cover, cringe-inducing in hindsight, asking, “The Next Warren Buffett?”
It’s hard to quickly sum up the extent of the influence operation Bankman-Fried, 30, and his associates built during his meteoric ascent. My colleagues have described it as “a network of political action committees, nonprofits and consulting firms” that “worked to court politicians, regulators and others in the policy orbit.”
Last week, Bankman-Fried was arrested in the Bahamas, and a federal grand jury indicted him on eight charges that include wire and securities fraud and money laundering, along with conspiracy to commit those offenses. He has agreed to be extradited to the United States as soon as Wednesday, a decision one of his lawyers said defied “the strongest possible legal advice.” Bankman-Fried has denied wrongdoing.
The extraordinary financial scandal has also become a sticky political morass, sucking in dozens of lawmakers and groups. Prosecutors also accused Bankman-Fried last week of defrauding the Federal Election Commission by running what’s known as a straw-donor scheme — making political contributions under someone else’s name.
Bankman-Fried’s contributions, Damian Williams, the U.S. attorney for the Southern District of New York, said last week, “were disguised to look like they were coming from wealthy co-conspirators when in fact the contributions were funded by Alameda Research,” a hedge fund closely tied to Bankman-Fried’s cryptocurrency exchange, FTX, “with stolen customer money.”
FTX, under new management, said on Tuesday that it wanted to recoup that money, and is threatening legal action if the cash is not returned voluntarily. It’s not clear how much is considered stolen, but Bankman-Fried and his associates poured at least $70 million into various campaigns over 18 months.
In 2022, Bankman-Fried donated about $40 million to various candidates and political committees, overwhelmingly to Democrats. Those donations were “mostly for pandemic prevention,” Bankman-Fried has insisted. But a less lofty aim of his influence-peddling, clearly, was to shape federal regulations in his company’s favor.
Before his arrest, Bankman-Fried told Tiffany Fong, a YouTube journalist, that he had also donated about the same amount to Republicans in ways, he suggested, that would not necessarily pop up in federal campaign finance reports.
“All my Republican donations were dark,” Bankman-Fried said. He did it, he explained, because reporters are “all secretly liberal” and would “freak” if he donated to Republicans in his own name.
“You don’t often have someone giving an interview and admitting that,” said Donald Sherman, a lawyer who worked on the F.E.C. complaint on behalf of Citizens for Responsibility and Ethics in Washington, a nonprofit group.
A former FTX colleague, Ryan Salame, gave about $24 million in the midterm elections, mostly to Republican candidates and groups. It’s not clear if that’s what Bankman-Fried was referring to, but his careless comments to Fong prompted an outside group to file a complaint to the F.E.C., which started to show some bipartisan interest in cracking down on straw donors this year.
The F.E.C. can’t sent people to jail, but the Justice Department certainly can: Getting busted for making straw donations worth more than $25,000 can land you in federal prison for up to five years.
If FTX’s cash weren’t politically toxic before, it surely is now. Federal regulations require the return of illegal campaign donations, and The New York Times reported recently that prosecutors were reaching out to the campaigns and committees that took money from Bankman-Fried and his associates to learn more about the nature of those contributions.
For the Democrats who are embarrassed by taking dirty money, perhaps the only blessing of this scandal might be that it’s a bipartisan one.
That might be why, as Michael Schaffer noted in an astute column for Politico written before Bankman-Fried’s indictment, the two parties aren’t firing at each other in Washington. The city’s “polarized political-media ecosystem can’t do much with a potential scandal,” he wrote, “if there’s no partisan advantage to drive it.”
But the FTX scandal has already become a factor in at least one Democratic primary.
In Chicago, Representative Jesús García, who is known as Chuy and is leading some polls in the city’s mayoral race, is under attack by surrogates of Mayor Lori Lightfoot for the fact that one of Bankman-Fried’s groups supported García’s campaign with about $150,000 worth of direct mail. García is a member of the House Financial Services Committee, which oversees the crypto industry, and Lightfoot’s allies have insinuated that his financial ties undercut his claim to be a reformer.
“Congressman García is and always has been a skeptic of cryptocurrencies,” his spokesman responded, adding that García had already redirected a $2,900 donation from Bankman-Fried to charity. As for the direct mail, the campaign said, it was an independent expenditure that was spent on his behalf without his involvement.
That isn’t likely to be where the blast radius of FTX’s implosion ends, however. I chatted with Ken Vogel, an investigative reporter in the Washington bureau of The Times, about the widening scandal. Here is our conversation:
You’ve been covering money in politics for a long time. Have you ever seen anything like this?
This one stands out. I can’t think of another example of a small group of people who so rapidly accrued such a huge amount of cash — legally or otherwise — and then almost immediately started spreading it so widely around the political system in an effort to achieve specific policy goals. Usually, ascendant companies and their executives take a few years to start working Washington in such a concerted way.
As you survey the fallout from Bank-Friedman’s donations, what strikes you as the most surprising thing we’ve learned?
I’m not surprised that the scandal, which is fundamentally about alleged financial fraud, has come to include a significant campaign finance angle.
As questions started percolating about FTX, I began talking to people and reviewing documents outlining its Washington operation. It quickly became apparent that this sudden surge in political and advocacy spending was not necessarily accompanied by the careful attention to byzantine campaign finance rules that you typically see with efforts involving this much money.
Having said that, the more I learn, the more surprised I am by just how blurry the lines were at FTX between corporate affairs, issue advocacy and political spending.
A lot of Democrats were no doubt surprised to learn that FTX was also donating to Republicans. Why would a crypto company want to play both sides? It wasn’t just about “pandemic prevention,” was it?
Even if we take Bankman-Fried and his associates at their word that they were deeply concerned about pandemic preparedness, the spending on that issue at times overlapped with spending geared toward creating a favorable regulatory climate for cryptocurrency.
The crypto push was bipartisan because lawmakers and regulators across the political spectrum have an interest in the issue. So the FTX crew worked to cultivate allies in both parties, with Bankman-Fried leading the effort to court Democrats and Ryan Salame, another former FTX executive, leading the effort to court Republicans.
Now that Bankman-Fried has been indicted, there’s a scramble to return his donations. Is there any legitimate reason that groups that took his money would need to wait for legal guidance, or are they really just stalling for time?
Some campaigns and committees, or their lawyers, say they are waiting for the Justice Department to set up or endorse some kind of fund through which restitution could be paid to FTX customers who lost their shirts as a result of the company’s alleged fraud.
While donating money to charity in amounts equivalent to FTX-linked contributions might provide a nice talking point for a campaign or political action committee, it doesn’t necessarily help FTX’s victims.
Another reason some groups might be waiting: They received big checks from FTX executives, but don’t have that much in the bank to return, because they spent most of their cash in the run-up to the midterms. For instance, House Majority PAC, a group close to Speaker Nancy Pelosi, received $6 million from Bankman-Fried, but the group ended last month with less than $500,000 in the bank.
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