Democratic Ties to Sam Bankman-fried Come Under Fire After FTX Collapse for Being “Bedazzled by Money”

The reputation of the cryptocurrency industry has suffered an unprecedented blow as a result of Sam Bankman-downfall, Fried’s, and some of this notoriety may spread to lawmakers who accepted his contributions as well as to former regulators and Capitol Hill staffers who accepted lucrative jobs defending digital-asset companies before Congress.

One of the most significant donors to political causes during the 2022 election season was Bankman-Fried, creator, and CEO of the failing cryptocurrency exchange FTX. She gave $40 million, largely to Democrats, with a specific focus on supporting crypto-friendly candidates in Democratic primary races.

FTX, like many other crypto companies, actively sought out former federal regulators and Capitol Hill employees—a tactic that has received criticism but has long been standard in the financial services sector. Democratic legislators who closely collaborated with Bankman-Fried, according to Jeff Hauser, head of the left-leaning Revolving Door Project, would have a lot to explain to the progressive half of the party.

He claimed that “many people in the Democratic party got pretty close to Sam Bankman-Fried, and that speaks very poorly on people who took this person seriously.” “People who have fought corporate power in previous incarnations have been charmed by the money that seems to be thrown their way.”

1) Per our Bahamian HQ’s regulation and regulators, we have begun to facilitate withdrawals of Bahamian funds. As such, you may have seen some withdrawals processed by FTX recently as we complied with the regulators.

— FTX (@FTX_Official) November 10, 2022

The Protect Our Future PAC, which invested tens of millions of dollars in the Democratic primary elections this year, was mostly funded by Bankman-Fried. He also suggested that if Donald Trump were the Republican contender, more than $1 billion might be spent to defeat him in the 2024 presidential election.

Come see our video library. Whether or not Bankman-Fried ever intended to follow through with such contributions, Hauser said that promises of money of this size probably tantalized many Democratic politicians.

By employing former Capitol Hill personnel and federal financial regulators to lobby and advise them on regulatory issues, the cryptocurrency business has also exercised influence. In a report released in February by the nonpartisan anticorruption watchdog Campaign for Accountability, 240 instances of officials holding significant positions in the White House, Congress, federal regulatory agencies, and national political campaigns moving in and out of the industry were documented.

According to Dennis Kelleher, president, and chief executive officer of the nonpartisan financial-reform nonprofit Better Markets, “the crypto sector is following the typical playbook for pushing special interests in Washington, including leveraging all the levers of the influence industry.” The revolving door, when former officials basically sell off their public service by exploiting their access and influence on behalf of their private clients, is one of the most harmful aspects of that.

This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire https://t.co/BGtFlCmLXB and help cover the liquidity crunch. We will be conducting a full DD in the coming days.

— CZ 🔶 Binance (@cz_binance) November 8, 2022

Despite the fact that well-known tokens like bitcoin BTCUSD, -3.29%, and ether ETHUSD, -4.44% have lost more than 70% of their value over the past year, Kelleher praised the achievements of federal banking and securities regulators who have been successful in keeping the carnage in the crypto markets isolated from the established financial system.

With real-time news and analysis from MarketWatch, you can better understand how contemporary global business practices, market dynamics, economic policies, and more affect you. Nevertheless, he thinks that the influence campaign for cryptocurrencies has persuaded lawmakers that legislation is required, not more funding for market regulators to enforce the laws already in place, but legislation that would tailor the financial-regulatory apparatus to be more friendly to the business models of digital-asset companies.

The Commodity Futures Trading Commission, which bill opponents claim is more crypto-friendly than the Securities and Exchange Commission, would be given regulatory authority over the most well-known cryptocurrencies under a bill introduced in June by Democratic Sen. Kirsten Gillibrand of New York and Republican Sen. Cynthia Lummis of Wyoming.

The ranking Republican on the Senate Agriculture Committee, Sen. John Bozeman of Arkansas, and the chairwoman of the committee, Democrat Debbie Stabenow of Michigan, have introduced a different bipartisan plan that anticipates a like structure.

These measures, according to Kelleher, are the result of the crypto industry’s vigorous lobbying efforts, and without that pressure, politicians could realize that what is really required is greater funds to police existing securities regulations.

People need to understand that the cryptocurrency industry is essentially unregulated, Kelleher said, adding that exchanges like FTX had the option of registering with the SEC as a securities exchange, which would have ensured that the company couldn’t engage in the kinds of activities that ultimately brought about its demise.