Big, bad Bankman-Fraud
Dominic Green
In 2020, the second-biggest donor to Joe Biden’s presidential campaign was Sam Bankman-Fried, the CEO of the cryptocurrency derivatives platform FTX. In the 2022 midterm elections, only George Soros gave more to Democratic candidates. On Nov. 11, FTX, which had been valued at $40 billion in March, declared bankruptcy. On Dec. 13, the U.S. attorney for the Southern District of New York indicted Bankman-Fried on charges including wire fraud, conspiracy to defraud investors, lenders, and the United States, conspiracy to violate campaign finance laws, and conspiracy to commit commodities and securities fraud.
That’s a lot of conspiracy. And there’s more. Bankman-Fried and his inner circle are alleged to have illegally diverted as much as $10 billion from FTX to its trading subsidiary, Alameda Research. More than $7 billion is missing in what the Southern District of New York calls “one of the biggest financial frauds in history.”
When Bernie Madoff ran history’s biggest Ponzi scheme, he used the proceeds to enrich himself, his family, and his friends and keep the fraud going. Madoff’s was a classic long-game ripoff. FTX, however, was fast and furious, and the scandal is both financial and political. Major investment firms such as Sequoia and Blackrock bought into FTX and the unregulated cryptocurrency market. Investors followed. In the 2022 cycle alone, nearly $40 million flowed from FTX to Democratic PACs, campaigns, and candidates, including the Democratic National Committee.
John Ray III, FTX’s new CEO, is a bankruptcy expert who oversaw the winding-up of Enron. Ray’s filing with the Delaware bankruptcy court reads: “From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”
The FTX saga had more red flags than a Communist rally in China. FTX was a flimsy offshore operation from the start. Bankman-Fried founded FTX in Hong Kong in 2019, though it wasn’t licensed to operate an exchange there. In September 2020, he moved FTX and Alameda’s 10-person team to a rented penthouse in a resort in the Bahamas. He was drawn, the New York Times delicately put it, “by a regulatory setup that allowed him to offer risky trading options that weren’t legal in the United States.”
Follow the money. According to Open Secrets, a nonpartisan organization tracking political spending, in the 2022 midterm cycle, Bankman-Fried gave nearly $1 million to candidates and $38.8 million to outside groups. Apart from a $28 million contribution to his own Protect Our Future PAC, which purports to boost candidates keen on fighting future pandemics, he gave $6 million to House Majority PAC, a pro-Democratic political action committee. He also gave millions to left-wing media outlets such as Vox, ProPublica, and the Intercept.
FTX’s stated ethos, “effective altruism,” investing to maximize the future benefit to society, was a bait-and-switch. So was Bankman-Fried telling a House committee that investing in the unregulated cryptocurrency market would help low-income people “build savings.” So was last April’s Crypto Bahamas conference. The guest speakers on its FTX stage included Bill Clinton, Tony Blair, Tom Brady, and Gisele Bundchen, who was FTX’s “environmental advisor.” The Bahamian prime minister, Philip Davis, opened the Crypto Bahamas proceedings, declared that the notoriously non-transparent Bahamas was “open for business,” and planned to launch a carbon-credit trading platform through FTX.
Meanwhile, FTX had only three directors (Bankman-Fried, an FTX colleague, and an outside lawyer). Somehow, Truvalue Labs, which rates companies by the woke investment criteria of environmental, social, and corporate governance, gave FTX a higher score for “leadership and governance” than Exxon Mobil. While Bankman-Fried talked about investing for the future benefit of society, FTX rinsed hundreds of thousands of small-time investors and diverted their cash into political donations, including $640,000 in the first nine months of 2022 on lobbying Congress while it considers regulating cryptocurrencies.
In text messages that a Vox reporter released, Bankman-Fried agreed that the “ethics stuff” was “mostly a front,” part of “this dumb game we woke westerners play where we say all the right shiboleths and so everyone likes us.” For the same reason, he says, he kept his smaller donations to Republican candidates “dark” because “reporters freak the f*** out if you donate to a Republican because they’re all super-liberal.”
“Everyone goes around pretending that perception reflects reality,” Bankman-Fried sighed. The reality is that Bankman-Fried has been indicted on charges of conspiracy, but he cannot have conspired alone. Was FTX just a high-tech hustle or a dark-money laundry that spun out of control or a bit of both? It is baffling that on Dec. 7, Rep. Maxine Waters said that she did not think it necessary to summon Bankman-Fried to the House Financial Services Committee.
A “widely-shared photo” of Bankman-Fried hugging Waters, Fortune says, appears to have been taken at the Crypto Bahamas conference. Also sharing in the “chummy moment” is Allyson Maynard-Gibson. She’s a former minister in Davis’s government who, Fortune says, “worked as a lawyer for FTX” and “helped FTX become the first exchange to be registered under the Bahamas’ groundbreaking digital asset regulation.”
Maynard-Gibson “sat behind Bankman-Fried during a Congressional hearing last year.” Afterward, Waters blew a kiss to Maynard-Gibson. According to a Fortune source in Washington, Waters and her husband Sid Williams, who was Clinton’s ambassador to the Bahamas, have “stayed at Maynard-Gibson’s home during visits to the country.” There is, of course, no suggestion that Waters has done anything wrong, ever.