Bankman-Fried’s Arrest at the Bahamas Sends Shockwaves Through Capitol Hill

The blast radius of the news that Sam Bankman-Fried has been arrested at his Bahamian villa and will be extradited to America to stand trial on a host of charges connected to the implosion of his FTX exchange extends from that island idyll all the way to the swamp of the District of Columbia.In the meantime, Mr. Bankman-Fried has been taken into custody at Nassau, a harbor town founded in 1670. The indictment, handed up from the United States Attorney’s Office of the Southern District of New York, charges on eight counts, including fraud, conspiracy, and violation of campaign finance laws. Already unveiled is a civil complaint from the Securities and Exchange Commission. Its chairman, Gary Gensler, accuses Mr. Bankman-Fried of building a “house of cards on a foundation of deception” and alleges that his crypto Xanadu, which included both FTX and Alameda Research, an allied hedge fund, was “corrupt from the start.”The SEC’s complaint alleges that Mr. Bankman-Fried used funds from an entity allied with FTX, Alameda, to “make large political donations,” in addition to purchasing “tens of millions of dollars in Bahamian real estate for himself, his parents, and other FTX executives.” Mr. Bankman-Fried and his crypto fortune were no stranger to Congress, and on the day of his arrest he was scheduled to testify before the House Committee on Financial Services on a topic in which he was presumably well versed: “Investigating the Collapse of FTX, Part I.”The lawmakers instead heard from John Ray III, who took over FTX after Mr. Bankman-Fried’s fall from grace and is attempting to get its fisc in order. His opening statement relates that “never in my career have I seen such an utter failure of corporate controls at every level of an organization, from the lack of financial statements to a complete failure of any internal controls or governance whatsoever.”Mr. Ray told a story of “non-sophisticated” individuals and detailed his effort to gain “command and control” of the ruined company. He articulated a “truly enormous” task ahead of analyzing what happened under Mr. Bankman-Fried’s watch. He sketched a “spending binge,” commingling of client funds with company accounts, and “loans and payments” to insiders. Representative Maxine Waters, who chairs Financial Services, expressed frustration that Mr. Bankman-Fried’s arrest interfered with that appearance. In a statement, she noted that the “public has been waiting eagerly to get these answers under oath before Congress, and the timing of this arrest denies the public this opportunity.” Ms. Waters has been particularly loquacious on the subject of the fate of the alleged fraudster. In a tweet inviting him to testify, she opined that “your willingness to talk to the public will help the company’s customers, investors, and others.” She later added that “lies” were circulating that she would not subpoena Mr. Bankman-Fried. In anticipation of Mr. Bankman-Fried’s testimony, Ms. Waters allowed that she and her team “appreciate that you’ve been candid in your discussions about what happened,” in reference to a raft of press appearances that Mr. Bankman-Fried conducted virtually.Ms. Waters was not the only progressive stalwart who had kind things to say about Mr. Bankman-Fried. On CNBC’s Squawk Box, Representative Ro Khanna, seen by some as an heir to Senator Sanders as a leader of the Democrats’ left flank, claimed that “Many of us thought that Sam Bankman-Fried was innovative.” According to Federal Election Commission filings, Mr. Bankman-Fried gave to both individuals and PACs more than $40 million. While the vast majority of those donations appear to be to Democrats, SBF claims that he has given an equivalent amount to Republicans through non-public “dark money” byways.When it comes to Mr. Bankman-Fried’s public donations, 50 Democratic House and Senate candidates received his largesse, while only eight Republican Senate candidates received funds. Around $200,000 in documented funds went to GOP candidates. Mr. Bankman Fried’s co-chief executive officer, Ryan Salame, was a conservative patron. According to the Washington Post, he gave $24 million to Republicans in the last election cycle. Representative Brad Sherman, a Democrat, noted that “when you examine FTX efforts to influence Washington, you have to look at both CEOs, not just the eccentric guy wearing the shorts.”Mr. Sherman bemoaned “efforts by billionaire crypto bros to deter meaningful legislation by flooding Washington with millions of dollars in campaign contributions and lobbying spending have been effective.” SBF was actively engaged in lobbying efforts to set crypto regulatory policy with a range of congressmen.One example of that strategy comes into focus in relation to Senator Gillibrand. According to MarketWatch, Mr. Bankman-Fried gave her at least $10,000 via a political action committee. Ms. Gillibrand co-sponsored a bill that would have given the SEC less oversight responsibility over crypto funds. According to a spokeswoman, she has since forwarded that donation to a financial literacy charity.Mr. Bankman-Fried was the second largest donor to President Biden’s successful presidential campaign, pouring over $5 million into the Democrat’s coffers. That sum was surpassed only by the largesse of the former mayor of New York City, Michael Bloomberg, who gave $56 million. Donating to Democrats was a Bankman-Fried family pursuit. The mother of the accused, Stanford Law professor Barbara Fried, headed Mind the Gap, described by Vox as “secretive group” that has “unleashed millions of dollars in political spending from Silicon Valley” sourced from tech tycoons to elect liberal candidates. Ms. Fried and her husband Joseph Bankman — a fellow Stanford law professor — have reportedly been hunkered down in the Bahamas with their son as his fund imploded. Mr. Bankman was on FTX’s payroll, and a house was purchased in their name for $16.4 million near Mr. Bankman-Fried’s Bahamian compound. At the hearing, Mr. Sherman rejected the notion that Mr. Bankman-Fried was a “snake in the garden of crypto.” Instead, he argued that “crypto is a garden of snakes” that seeks to displace American currency. Crypto’s largest advantage, the congressman thundered, was “tax evasion.” He referred to Mr. Bankman-Fried as an “inmate.” The fallout of Mr. Bankman-Fried’s alleged crimes is mounting at the District of Columbia. According to Bloomberg, at least “$73 million of political donations tied to Sam Bankman-Fried’s FTX may be at risk of being clawed back.” It is unknown how much, if any, of these funds will be recovered. Mr. Bankman-Fried was just getting started when it all fell apart. On a podcast in May, he pledged to spend “north of $100 million” on the 2024 election campaign, with a “soft ceiling” of one billion dollars. He noted that how much he spent would be “dependent on exactly who’s running where for what.”

Bankman-Fried’s Arrest at the Bahamas Sends Shockwaves Through Capitol Hill

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