There were rumors that Sam Bankman-Fried's Christmas party would be held in Washington.
Bankman-Fried was about to host a big party. Politics gossiped about which musical artists might headline and whether or not Tom Brady would make an appearance.
Miller Whitehouse-Levine is the policy director of the Defi Education Fund. It was thought that the Christmas party in DC would be the craziest one ever.
Two years of lobbying and networking by Bankman-Fried culminated in the holiday bash. The 30-year-old billionaire had devoted an unprecedented amount of time and money to influence the regulators and lawmakers responsible for overseeing his business. He was one of the Democrats' most generous donors. He funded a nonprofit that engaged in partisan political lobbying and threw lavish parties at a $3 million house it bought in Washington. He hired a team of former federal officials to help him shape federal policy because he relied on the revolving door between regulatory agencies and the companies they regulate.
The CEO of the Chamber of Progress, a trade group that FTX was a member of before it collapsed, says that he was the most engaged of thecryptocurrencies CEOs in Washington.
Bankman-Fried made headway in pushing legislation that would have allowed exchanges like FTX to self- regulate, making their own determination about whether the cryptocurrencies on their platforms complied with federal rules. The Securities and Exchange Commission has a much larger enforcement staff than the agency he worked for. Bankman-Fried was given the chance to drive the train when Washington was mostly asleep.
There has been a lot of hand-wringing about the financial house of cards built by Bankman-Fried. Billions of dollars in corporate funds are still missing. FTX's investors didn't ask harder questions about the business. What will the future hold for the backers and customers who have been wiped out in the debacle?
Why didn't the congressional committees that are charged with protecting financial investors and consumers catch on to what was happening at FTX? How was Bankman-Fried able to quickly and deftly enter the corridors of power in Washington? The system of regulatory oversight was set in place after the banking crash that plunged America into the Great Depression.
Insider spoke with more than a dozen Washington insiders, FTX employees, and industry watchers who all agreed that the answer was simple. Bankman- Fried set out to rig a notoriously rigged system through a potent mix of charm, charitable giving, and political contributions. The "party of the century" and crafting industry-friendly legislation were just a few of the things SBF did to make himself a better person in Washington.
Eric Soufer, a partner with the strategic communications consultant Tusk Strategies, says that he understands that Washington can be wooed through aggressive fundraising and political giving That leads to a lot of doors.
According to current and former employees, Bankman-Fried did not show much ambition in his early days at FTX. After graduating from MIT, the socially awkward 20-something worked in traditional finance for Jane Street, the high-frequency-trading shop, and then opened his own trading firm. He launched FTX when he couldn't find an exchange that offered the services he was looking for. One former employee started cautiously. Wearing the same clothes day after day, sleeping on his bean bag, and working long hours that colleagues and employees felt pressured to keep up with, Bankman- Fried focused on developing FTX's core product.
He began to broaden his horizon after a short time. Bankman- Fried decided to bring the Silicon Valley philosophy to bear on the political sphere because he believed that people should use data and rationality to guide their morality and charitable giving.
He already had family ties to Washington. The political action committee called Mind the Gap was founded by Barbara Fried, a law professor at the University of California, Berkeley. The PAC uses "rigorous research" and "quantifiable metrics" in order to guide its recommendations.
A former executive says that his mother was running a political action committee. There is aFamiliarity with the importance of access in DC
Along with his mother's influence in Democratic circles, Bankman-Fried had another resource that opened doors in Washington: lots and lots of money. More than $10 million was given to Joe Biden's campaign by his firms. The cash from a newcomer made a big impact in Washington. The SBF had come.
Helping to put Biden in the White House convinced Bankman- Fried that politics was a good investment. He told Recode that he wanted to find out how he could do the most good. I had a lot of things to look at. I have been skeptical of politics being on that list. It was like a trap for dollars in general and had the hallmarks of a crowded place. I thought about that before I looked into it.
Bankman- Fried got into politics after the 2020 election. He funded Guarding Against Pandemics to improve America's ability to deal with infectious-disease outbreak. The nonprofit advocacy group quickly established itself as a power center in Washington circles. The group bought a four-story house in the Capitol Hill neighborhood and used it to host high-profile political parties.
What did Bankman- Fried expect in return for his favors? He told Recode that he wanted to be useful to Biden. He gave another thought.
He thinks Biden won't put much thought into it. If the administration is ever looking for an expert on digital currency regulation...
It seemed like a joke. Bankman- Fried just revealed his new job description.
There is a turf war going on between the Commodity Futures Trading Commission and the Securities and Exchange Commission that is making things worse. It was clear that regulation was coming to the exchange. The only question was which agency would be chosen to protect the henhouse.
The Commodity Futures Trading Commission would be your clear choice if you were a billionaire in favor of less strict regulation. The staff of the Commodity Futures Trading Commission is 700. The SEC has a staff of over four thousand. The agency has 170 attorneys spread across it, compared with 50 lawyers and analysts for the SEC. Gary Gensler is the chair of the SEC and he has brought numerous enforcement actions against the companies that he has been against in the past.
FTX was a place to buy and sell coins. Bankman- Fried had bigger goals. The goal was to become the "everything exchange" and the "everything app" when it came to financial services, according to the FTX executive. Bankman- Fried needed the approval of US regulators to do that.
Bankman- Fried presented himself to regulators and lawmakers as a billionaire who favored government oversight of his business. Whitehouse-Levine said that he and his team at FTX were pro-regulatory. "That was an impression they actively cultivated, which differentiated them from what certain regulators might consider to be the more intransigentcryptocurrencies lobby at large." A message that many people in Washington were eager to hear came from them.
According to a former executive at FTX, Bankman-Fried told Washington that customers would be best served if spot markets were regulated by the same agency. He pointed out that almost all of the activity in the market was happening outside of the US. He said that bringing that activity to the US would strengthen the market and give the US a dominant position in the market.
Both positions seemed regulatory-friendly, but they favored handing the jurisdiction of derivatives and futures to the US Commodity Futures Trading Commission. Bankman- Fried went on a shopping spree and hired the best advisors from the CFTC. Ryne Miller was a lawyer for the commission. Mark Wetjen, a former CFTC commissioner, was hired as its head of policy. A white-shoe law firm that counted Thomas Edison among its previous clients retained a former chair of the Commodity Futures Trading Commission.
The majority of the team was in place when Bankman- Fried met with Gensler. In order to register with the SEC, the exchanges had to go through the front door. According to the chair's calendar, Bankman- Fried was joined in the meeting by Miller, Giancarlo, and Harrison.
Bankman-Fried presented himself as a friendly voice of reason and cultivated relationships with the rank-and-file congressional staffers who do much of the heavy lifting in writing legislation
FTX executives made several proposals about how to regulate the exchanges. It was possible to register the operations as an alternative trading system. A person with knowledge of the proposal said that it would have given the SEC oversight and put FTX on the path to becoming a regulated exchange. The proposal would have resulted in less regulation for the exchanges. They suggested that FTX register as a Form 1 national security exchange, which would subject the company to more strict rules.
Bankman- Fried was not going to be deterred. He decided to embark on an all-out charm offensive because he was the only one who avoided or antagonized regulators. According to those who attended meetings where he spoke, Bankman- Fried presented himself as a friendly voice of reason and cultivated relationships with congressional staffers who do much of the heavy lifting in writing legislation. According to a person familiar with the relationships, Gensler made inroads with the SEC staff despite his protests.
Bankman-Fried told The New York Times that he spent a lot of time in the nation's capital trying to get regulators. He said that was not a money issue. It was elbow grease. It was necessary to meet with regulators and submit hundreds of thousands of pages of documents. He was enamored with Washington because of his keenness to engage and his largesse. A leading voice is needed to act on behalf of the industry. He was available to help.
As Bankman-Fried met with regulators, he began to spend a lot of money. Most of the money he gave to election campaigns and political action committees was in support of Democratic candidates. His teammates invested a lot on the other side of the aisle. Most of the money was donated to Republican efforts by Ryan Salame.
The money went unrecognized. In March, eight members of Congress wrote a letter to the SEC questioning its authority to require FTX to give information. Five of the signers had received donations from FTX employees. The National Republican Congressional Committee, which is headed by Rep. Tom Emmer, received over two million dollars from the company and Salame.
Bankman-Fried spent a lot of money on Washington lobbyists. FTX placed Conaway Graves Group, Empire consulting Group, Rich Feuer Anderson, and T Cap Solutions on the payroll. FTX paid $540,000 to lobbyists in the second and third quarters.
Huge sums in charitable donations were handed out by FTX in order to bolster its political objectives. The FTX Future Fund was managed by the company and it distributed money through Guarding Against Pandemics. It was hard for politicians to ignore Bankman- Fried's requests for meetings because of the dual initiatives. One person familiar with those sessions said that cryptocurrencies and the flu would come up in the same conversation.
Bankman- Fried has insisted that his political giving was purely altruistic, driven by an altruistic desire to support candidates who are "outspoken in favor of doing things now to prevent the next Pandemic." The message of combining philanthropy and politics was clear, according to others. Soufer says that most people believed that they were separate but unrelated. SBF was seen as a high-water mark for the modern philanthropist. I don't think anyone thought that he would fund candidates who were hostile to the industry.
Bankman-Fried was like the Steve Jobs of digital assets to politicians who didn't know much about it. FTX was backed by some of the top venture capital firms. Whitehouse-Levine says that their investors brought credibility. Bankman-Fried gave speeches at think tanks like the Bipartisan Policy Center and rubbed shoulders with Bill Gates and Tony Blair at the company's conference. He wooed the media, investing in the buzzy global news startup Semafor, donating $5 million to ProPublica, and helping to fund a vertical dedicated to effective altruism. He had previously bought up some of the company's stock with an eye toward buying himself a stake in the company.
—Iain Martin (@iainmartin1) November 12, 2022
An advisor made it clear. If you slash Bill Gates, you're also building a reputation as a philanthropist, a political donor, a power broker, and anentrepreneur, all at the same time. You're building companies that make them money while doing Gates, Soros, and others.
Paper over Bankman- Fried's odd behavior was helped by the aura of all the big names who surrounded him. A senior industry figure who attended meetings with him in Washington said that lawmakers were sometimes offended by the way he presented himself. He would fuck up the messaging in front of congress people and it was really annoying. I think it's related to the typical engineer in Silicon Valley who is high IQ and low quality.
One of SBF's advisors put his lobbying efforts in terms favored by the VCs who were enthusiastically backing FTX: "He just wanted to build this flywheel of domination."
Tom Brady, Stephen Curry, and Larry David are some of the celebrity spokespeople FTX signed up. Kevin Werbach, a Wharton business professor who appeared with Bankman-Fried at a congressional hearing, said that the effort increased its name recognition. Many people who weren't holders of digital assets were able to see the FTX logo.
Bankman- Fried was a master at Wooing Washington. He made himself impossible to ignore in Washington because of his reputation as a cryptanalyst. He just wanted to build this flywheel of domination, according to one of his advisers.
Bankman-Fried had prepared for an appearance at a congressional hearing. He swapped his shorts and shirt for a suit and sat through questioning before the House Financial Services Committee, bolstering his reputation as the friendly and reasonable face of digital currency. He joked with his followers about how badly he had needed to pee during his testimony and how he had failed to tie his shoelaces correctly.
Bankman-Fried was accompanied by Wetjen, Harrison, and Miller at the SEC. He was accompanied by Brad Katsuyama, who was considered a white knight in the world of high-frequency trading. The meeting was not as good as the first one. Before the FTX executives got to the meat of their presentation, Gensler interrupted them and spoke about how he favored a more stringent regulatory approach. The SEC was not buying what Bankman- Fried was selling.
Bankman- Fried's political giving and philanthropic efforts earned him an audience at the White House. Bankman-Fried met with a policy advisor to Biden and a counselor to the president. Eliora and Wetjen were hired as FTX's first in-house lobbyists. Bankman-Fried went from being a little-known trader to having the ear of the president's inner circle in less than two years.
Bankman- Fried turned his attention to Congress after being rejected by the SEC. The Digital Commodities Consumer Protection Act is a bill that would give the Commodity Futures Trading Commission a key role in overseeing the industry. Concerns about conflicts of interest were raised after he suggested that the industry might chip in to give the commission the resources it needed to implement the DCCPA.
The measure was opposed by others in the sector because it was designed to favor FTX over its competitors. Critics worried that it might hurt "Defi", a project that competes with exchanges. The senior figure in the industry who attended meetings with Bankman-Fried said that he wasn't welcoming regulation. He was welcoming self-interested regulation that would have hurt other companies.
FTX was about to become Exhibit A in the case for more effective oversight of thecryptocurrencies. FTX's inability to control even the most fundamental aspects of its business has been painted in legal filings. The company didn't keep track of its assets or employees. FTX was run as a personal fiefdom of Sam Bankman- Fried, according to a lawyer for the company. The man that many Washington regulators and lawmakers considered to be the foremost expert on the subject is now being investigated by some of the same agencies and committees.
The tricky business of cultivating political power was not new to Bankman- Fried. Veteran observers were surprised by how quickly he succeeded. Christoff says a lot of this is the way things are done. It was done at an accelerated speed, and in a way that was a bit kludgy.
The price you pay for speed is known as a little kludginess. Producing a minimally viable product is the most important thing. There are signs that Bankman-Fried may have accomplished something. The Digital Commodities Consumer Protection Act, which he helped to bring into being, is unlikely to pass this year, but some on Capitol Hill still support it. Lawmakers should stop and look at the bill to make sure there are no gaps or holes, according to the chair of the Commodity Futures Trading Commission. The bill's sponsors are going to push for it.
Stabenow and Boozman received $32,400 in campaign contributions from Sam Bankman- Fried.
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