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

Sam Bankman-Fried stormed on to the US political scene with multimillion-dollar donations that led lawmakers, particularly Democrats, to believe he was ushering in the next generation of donors. But in a matter of days, his business empire collapsed into bankruptcy and the prospect of millions more in donations evaporated.

Before the fall of Bankman-Fried’s cryptocurrency exchange FTX, the entrepreneur had emerged as the second-largest donor to Democrats after George Soros. He had vowed to give up to $1bn to political candidates linked to causes he supported, a pledge from which he later backed away.

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

Bradley Beychok, co-founder of the Democratic super political action committee (Pac) American Bridge 21st Century, said Bankman-Fried “came on the scene out of nowhere [and] became a large supporter of different causes and candidates very quickly,” adding that he had built an “organised campaign”.

But a liquidity crisis that has forced the 30-year-old’s $32bn business empire into bankruptcy has erased a potential pool of funds linked to a seemingly reliable player in an often volatile industry.

“Sam didn’t live up to his commitments,” said one Democratic lobbyist working in the crypto space. Bankman-Fried’s grand spending promises had been “more bluster than action”, the lobbyist added.

The super Pac supported by Bankman-Fried backed the successful House campaign of Maxwell Frost in Florida © AP

The entrepreneur was the second-largest donor to Democratic-leaning groups during the latest midterm elections, spending $36mn. Soros spent $126mn, but the Pac he supported with that large donation only spent about $15mn this cycle.

The majority of Bankman-Fried’s donations, about $27mn, went to the Protect Our Future Pac, which supported candidates that prioritised pandemic prevention, one of his interests. It endorsed 25 Democrats in congressional races this cycle, of which 18 have so far won their respective races. Chief among these were Virginia representative Abigail Spanberger and Florida representative-elect Maxwell Frost, who at 25 will be Congress’s first Generation Z member.

While the volumes pledged were akin to those given by longstanding corporate titans, some argue Bankman-Fried’s donations were not entirely effective.

In Oregon’s sixth congressional district, Bankman-Fried’s super Pac spent a whopping $11mn on Carrick Flynn, a pandemic researcher and first-time congressional candidate who failed to advance to the election.

Some lobbyists and donors said they suspected Bankman-Fried’s primary goal in politics had been to further his crypto interests. During the 2022 cycle, Bankman-Fried donated $155,000 to rightwing Pacs: the Alabama Conservatives Fund, which backed Republican Alabama Senator-elect 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 to Debbie Stabenow, the committee’s Democratic chair.

Abigail Spanberger embraces supporters during an election night party
Abigail Spanberger, another of Bankman-Fried’s chosen candidates, won her race in Virginia’s seventh district © AP

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

The FTX founder and the company’s US counterpart FTX.US gave $3.5mn to the GMI Pac, which in turn transferred approximately $5.8mn to Web3 Forward Pac, a pro-crypto super Pac. Web3 Forward has supported the campaigns of Democrats, including Senator-elect John Fetterman in Pennsylvania and Oregon senator Ron Wyden, who chairs the powerful Senate finance committee.

During the election, Bankman-Fried sat out some high-profile races including Tim Ryan’s failed Senate campaign in Ohio, although Ryan had sought to refine the country’s infrastructure bill so as not to hit crypto groups.

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

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

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

The concerns over FTX’s financial health and its links to Bankman-Fried’s proprietary trading group Alameda Research that triggered a deluge of customer withdrawals from the exchange have also raised questions about the source of funds used for donations. The US Securities and Exchange Commission is investigating FTX over its crypto lending activities and management of customer funds, according to a person familiar with the matter.

But legal experts argue that even if these funds were proven to be linked to wrongdoing, there probably would be no legal basis for clawbacks.

James Cox, professor of corporate and securities law at Duke University, said this was due to the “bona fide” principle, which protects individuals who accept money with no knowledge it derives from illicit activity.

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

Harking back to another business scandal that reverberated through US politics, John Coffee, a professor at Columbia Law School, said: “I do not see the political recipients of Bankman-Fried’s donations as personally liable, but they may be embarrassed into returning these donations, just as many returned donations from the Sacklers,” in reference to the family embroiled in the country’s devastating opioid scandal.

But if lawmakers remain comfortable with Bankman-Fried and his donations do dry up, Beychok said this would not hurt Democrats, who had consistently out-raised Republicans in recent cycles.

“I rest assured that 2024 will be a spendorama and I don’t think that anything that happens . . . with FTX is going to change that,” Beychok said.

Additional reporting by Arash Massoudi in London

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