Tales from the Crypto: FTX & The Swamp
The spectacular collapse of the FTX cryptocurrency exchange is not just a business story. It’s a Washington swamp story and Republicans will be investigating it when they take control of the House in January. At issue is whether “Individuals within the Democrat Party accepted money with knowledge of potential criminal activity occurring at FTX.”
High-flying FTX bought Super Bowl ads and sports facility naming rights. It amassed a net worth of $32 billion to become one of the largest crypto exchanges in just three years with 28-year-old Sam Bankman-Fried at the helm. It lost half its worth in a matter of days when customers lost confidence and essentially started a run on the bank. It was reported Bankman-Fried secretly siphoned off $10 billion in customer funds and transferred it to another trading firm he also owned, run by his girlfriend. The trading firm invested in FTX’s crypto token, the financial roundtrip prompting investor concern. FTX was left without sufficient assets to pay customers pulling their money out, and bankruptcy ensued.
FTX has been called a Ponzi scheme, but it sounds more like embezzlement and fraud. News reports don’t talk about money from new investors being used to pay previous investors, as in a Ponzi scheme. Instead, $1-2 billion simply vanished. Some of it went into buying $121 million worth of property in the Bahamas, but a lot of it was going into buying influence in Washington.
FTX, Bankman-Fried, and other FTX top executives poured money into Democrat politicians and liberal causes – $28 million went to a Democrat pro-COVID lockdown PAC, and $4 million to a group called Reproductive Freedom for All. Democrat politicians who benefitted include Senators Dick Durbin and Bob Menendez. Bankman-Fried gave more than $5 million to Joe Biden’s presidential campaign and was the second largest Democrat donor in the 2022 midterms. Money also went to Republicans, but it’s common for corporations to make contributions on both sides of the aisle to hedge their bets in the influence game. In all, an estimated $57 million went to Democrat candidates and groups and $22 million to Republican candidates and groups. [Steve Moore newsletter, 11/21/22]
Another Democrat politician who benefited is Maxine Waters. There are pictures of her and Bankman-Fried with their arms around each, smiling. Another picture shows her blowing kisses to him. And this is the woman who, as current chair of the House Financial Services Committee, will be holding hearings on FTX next month. Moreover, nine members of the committee — seven Democrats and two Republicans — received more than a combined $300,000 in political contributions from Bankman-Fried and others at FTX. It doesn’t take a genius to see the conflict of interest here. It’s shaping up to be a whitewash, with the chair of the committee blowing kisses at the perp.
Meanwhile, critics are asking ‘what did the SEC know and when did it know it?’ It turns out the father of the girlfriend who ran the trading firm I mentioned earlier worked with Gary Gensler, chairman of the SEC, when both were professors at MIT. Gensler, former campaign finance chair for Hillary Clinton, has been criticized for not seeing FTX was going off the rails. A famous short seller who spotted trouble at Enron and other places, had been publicly warning FTX looked like a scam. In addition, there are allegations Gensler was actively helping FTX find legal loopholes to escape regulation.
Bankman-Fried insists all the money he has been throwing around is completely innocent and not meant to influence lawmakers or regulators. The House Republicans will be testing that assertion come January, and we’ll see just how innocent all of this really is.
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