Sam Bankman-Fried’s fall from grace has dealt an unprecedented blow to the crypto industry’s reputation — and some of this scandal could spill over to politicians who took his money, as well as to former regulators and Capitol Hill staffers who took high-paying jobs representing digital active companies before Congress.
Bankman-Fried, founder and CEO of the crumbling cryptocurrency exchange FTX, was one of the most generous donors to political causes during the 2022 election cycle, handing out $40 million, mostly to Democrats, with a particular focus on empowering crypto-friendly politicians in Democratic primaries.
FTX, like many other crypto firms, also aggressively recruited former federal regulators and Capitol Hill staffers, an often criticized practice but one that has been common in the financial industry for decades.
Jeff Hauser, director of the left-leaning Revolving Door Project, said Democratic politicians who worked closely with Bankman-Fried will have a lot of explaining to do to the progressive wing of the party.
“A lot of people in the Democratic Party got very close to Sam Bankman-Fried, and that reflects very poorly on people who took this guy seriously,”[ads1]; he said. “People who in their past lives have taken on power from the company have been confused by money that has apparently been thrown away.”
Bankman-Fried was the primary funder of the Protect Our Future PAC, which spent tens of millions of dollars in Democratic primaries this year. He also floated the idea of spending upwards of $1 billion in the 2024 presidential election to defeat Donald Trump if he were the Republican nominee.
Promises of money on this scale likely tempted many Democratic politicians, Hauser said, whether or not Bankman-Fried ever planned to make those contributions.
The crypto industry has also been influential by hiring former Capitol Hill staffers and federal financial regulators to lobby and advise them on regulatory issues. The Campaign for Accountability, a nonpartisan anti-corruption watchdog, published a report in February that found 240 examples of officials in key positions in the White House, Congress, federal regulatory agencies and national political campaigns moving in and out of the industry.
“The crypto industry is following the standard playbook of promoting special interests in Washington, including using all the levers of the lobbying industry,” Dennis Kelleher, president and CEO of the nonpartisan financial reform organization Better Markets, told MarketWatch. “One of the most damaging parts of it is the revolving door, where former officials essentially sell out their public services by using their access and influence on behalf of their private clients.”
Kelleher praised the performance of federal banking and securities regulators who have succeeded in keeping the carnage in the crypto markets separate from the traditional financial system as popular tokens such as bitcoin BTCUSD,
and ether ETHUSD,
lost more than 70% of its value over the past year.
Nonetheless, he believes that crypto’s advocacy campaign has convinced lawmakers that what is needed is to pass legislation that would tailor the financial regulatory apparatus to be friendlier to the business models of digital asset companies, rather than increasing funding for market regulators to enforce the regulations. already on the books.
A bill introduced in June by Republican Sen. Cynthia Lummis of Wyoming and Democratic Sen. Kirsten Gillibrand of New York would do just that by giving regulatory authority over the most popular cryptocurrencies to the Commodity Futures Trading Commission, which critics of the bill say is more crypto-friendly than Securities and Exchange Commission.
Another bill from the Senate Agriculture Committee, Debbie Stabenow of Michigan, a Democrat, and Sen. John Bozeman of Arkansas, the committee’s ranking Republican, envisions a similar setup.
Kelleher said these bills are a product of the crypto industry’s intense lobbying, and without that pressure, lawmakers may see what’s needed is more funding to enforce securities laws that already exist.
“People need to realize that the crypto industry is fundamentally lawless,” Kelleher said, adding that exchanges like FTX could have made the decision to register as a securities exchange with the SEC, whose oversight would have ensured that the company could not engage in those types of activities which led to its downfall.
“The industry made the conscious decision not to follow the law, to spend hundreds of millions of dollars on public officials to get a special law passed so they get special treatment,” he said.