Sam Bankman-Fried’s fall cuts off big source of funds for US Democrats

Sam Bankman-Fried burst onto the American political scene with multimillion-dollar donations that led lawmakers, especially Democrats, to believe he was ushering in the next generation of donors. But within days his business empire crumbled into bankruptcy and the prospect of millions more in donations evaporated.

Prior to the fall of Bankman-Fried cryptocurrency exchange FTX, the entrepreneur had become the second-largest donor to Democrats after George Soros. He had pledged to give up to $1 billion to political candidates linked to causes he supported, a pledge from which he later backed down.

He has also become one of the most prominent representatives of crypto in Washington, supporting digital asset legislation and hiring former regulators as advisers.

Bradley Beychok, co-founder of the American Bridge 21st Century Democratic Super Political Action Committee (Pac), said Bankman-Fried “came to the scene out of nowhere. [and] very quickly became a big supporter of different causes and candidates,” adding that he had built an “organized campaign.”

But a liquidity crisis that forced the 32-year-old’s $32 billion business empire into bankruptcy wiped out a potential pool of funds tied to a seemingly reliable player in an often volatile industry.

“Sam didn’t keep his promises,” said a Democratic lobbyist working in the crypto space. Bankman-Fried’s big spending promises had been “more bluster than real,” the lobbyist added.

Democrat Maxwell Frost celebrates his election victory in Florida's 10th congressional district on November 8

The Bankman-Fried-backed super Pac backed Maxwell Frost’s successful House campaign in Florida © AP

The contractor was the second largest donor to Democratic-leaning groups in the last midterm elections, spending $36 million. Soros spent $126 million, but the Pac he backed with this large donation only spent about $15 million this cycle.

The majority of Bankman-Fried’s donations, about $27 million, went to the Protect Our Future Pac, which supported candidates who prioritized pandemic prevention, one of its interests. He has endorsed 25 Democrats in congressional races this cycle, 18 of whom have won their respective races so far. Chief among those were Virginia Rep. Abigail Spanberger and Florida Rep.-elect Maxwell Frost, who at 25 will be the first Gen Z member of Congress.

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While the promised volumes resembled those given by longtime corporate titans, some argue Bankman-Fried’s donations weren’t entirely effective.

In Oregon’s sixth congressional district, the Bankman-Fried super Pac spent $11 million on Carrick Flynn, a pandemic researcher and top congressional candidate who failed to qualify.

Some lobbyists and donors have said they suspect Bankman-Fried’s main goal in politics is to advance his crypto interests. In the 2022 cycle, Bankman-Fried donated $155,000 to right-wing Pacs: The Alabama Conservative Fund, which backed Republican-elect Alabama Senator Katie Britt, a crypto supporter ; and Heartland Resurgence, which backed Senator John Boozman of Arkansas, the top Republican on the Senate agriculture committee that oversees crypto. Bankman-Fried also gave Debbie Stabenow, the Democratic chair of the committee.

Abigail Spanberger hugs her supporters on election night

Abigail Spanberger, another of Bankman-Fried’s chosen candidates, won her race in Virginia’s Seventh District © AP

Boozman and Stabenow said this week they would continue to support the Digital Products Consumer Protection Act, which Bankman-Fried campaigned for.

The FTX founder and his American counterpart FTX.US donated $3.5 million to the GMI Pac, which in turn transferred around $5.8 million to Web3 Forward Pac, a pro-crypto super Pac. Web3 Forward has backed the campaigns of Democrats, including Senator-elect John Fetterman in Pennsylvania and Oregon Senator Ron Wyden, who chairs the powerful Senate Finance Committee.

In the election, Bankman-Fried missed some high-profile races, including Tim Ryan’s failed Senate campaign in Ohio, though Ryan sought to fine-tune the country’s infrastructure bill so as not to touch crypto groups.

David McIntosh, chairman of the conservative Club for Growth, which has opposed many of the policies advocated by Bankman-Fried, said the FTX founder had “jumped with two feet” into the political realm.

But he added: “He didn’t have very good political advisers. . . What Sam did was pick individual targets and get involved in the primaries — which didn’t work,” McIntosh said.

The entrepreneur has also boosted his profile in Washington by hiring former regulators to liaise with financial watchdogs, including Mark Wetjen, former acting chairman of the Commodity Futures Trading Commission. FTX had submitted a request to the CFTC to automate risk management tasks in the futures markets that are typically performed by brokers. Wetjen declined to comment.

Concerns over FTX’s financial health and its ties to Bankman-Fried’s proprietary trading group, Alameda Research, which sparked a deluge of client withdrawals from the exchange, also raised questions about the source of funds used for trading. donations. The U.S. Securities and Exchange Commission is investigating FTX over its crypto lending activities and handling of customer funds, according to a person familiar with the matter.

But legal experts argue that even if those funds were proven to be linked to wrongdoing, there would likely be no legal basis for recovery.

James Cox, professor of corporate and securities law at Duke University, said this was due to the principle of “good faith”, which protects people who accept money without knowing it comes from illicit activities.

What might trigger refunds may not be the law, “but the question of how can the party overcome the opprobrium of being associated with ill-gotten gains?” adds Cox.

Reflecting on another corporate scandal that spilled over into American politics, John Coffee, a professor at Columbia Law School, said, “I don’t view the political recipients of Bankman-Fried donations as personally responsible, but they may be embarrassed to return these gifts. , just as many donations returned by the Sacklers,” in reference to the family implicated in the country’s devastating opioid scandal.

But if lawmakers stay comfortable with Bankman-Fried and his donations dry up, Beychok said it wouldn’t hurt Democrats, who have consistently outpaced Republicans in recent cycles.

“I’m sure 2024 will be a storm and I don’t think anything is going to happen. . . with FTX will change that,” Beychok said.

Additional reporting by Arash Massoudi in London

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