Washington, NY The collapse of the crypto exchange FTX has reached the center of US politics – and is causing problems for US President Joe Biden’s party in particular. At the end of November, several bodies in Congress want to investigate the collapse of the former billion-dollar company.
Maxine Waters, Democratic Chair of the Treasury Committee in the US House of Representatives, says: “FTX’s demise has caused enormous damage to millions of people.” Therefore, she expects a testimony under oath from CEO Sam Bankman-Fried. The Senate Banking Committee is also preparing hearings. According to the Washington Post, the Treasury Department is already examining the stability of other crypto exchanges.
But the Democrats in particular have a credibility problem with their sudden thirst for action. Because until recently, Bankman-Fried, known in the industry as SBF, and US politics were closely linked: the 30-year-old, who lives in the Bahamas, is the sixth-biggest political donor in the US. Ahead of the congressional election, Bankman-Fried was the second-biggest donor to President Biden’s US Democrats.
The case of FTX not only highlights the lax regulation of the crypto industry, but also the dependence of American politics on major donors.
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He also shows how quickly a young entrepreneur can approach the most powerful in the country if he is wealthy enough – or at least pretends to be.
Biden also benefited from FTX
In the meantime, FTX was the third largest cryptocurrency exchange in the world. On November 11, the company filed for bankruptcy, behind it is probably the biggest fraud scandal in the crypto world. The bankrupt exchange says it owes nearly $3.1 billion to its top 50 creditors.
>> Read also: FTX bankruptcy and the consequences – crypto, bitcoin, blockchain: was that it?
Quite a few members of Congress who now want to clear up the bankruptcy have received money from Bankman-Fried. Before the midterms, SBF had donated 39.7 million US dollars – around 38 million of them to the Democrats. This emerges from data from the US elections supervisory authority, which evaluated the OpenSecrets portal.
$27 million went to a political action committee called Protect Our Future focused on pandemic prevention that funded dozens of Democrats. Comparatively smaller amounts went to the Democratic Party headquarters and the Democratic and Republican congressional campaign committees.
SBF focused on up-and-coming politicians, such as New York MP Hakeem Jeffries, who is said to be speaker of the House of Representatives and successor to Nancy Pelosi. Or Congressman Abigail Spanberger from Virginia, who defended an important constituency for the Democrats. The 25-year-old Maxwell Frost, who is the first representative of “Generation Z” to move into Congress, was also supported.
SBF is a major supporter of Biden. He donated around five million dollars for his presidential candidacy in 2020 – more money came only from ex-New York Mayor Michael Bloomberg.
Republicans also got big bucks: Co-CEO Ryan Salame donated $19 million to Republican candidates and committees, making him the party’s 10th-biggest donor. Rep. Patrick McHenry could soon head the Finance Committee, his campaign benefited from FTX donations.
It is questionable where the funds for the large donations come from. The first answers come from insiders and from the previous findings of the court-appointed insolvency attorney. Accordingly, FTX has “no central overview” of its own cash holdings. “Never in my professional life have I experienced such a failure of internal controls and such a complete lack of reliable financial information as here,” wrote bankruptcy attorney John J. Ray.
The FTX founder is said to have used almost three quarters of the money that investors had pledged in a financing round in 2021 for his own purposes. The Wall Street Journal reported on Friday.
The industry was able to proliferate wildly for years
The entire digital asset industry is now to be put to the test. All cryptocurrency companies “must be held accountable,” demanded Democratic Senator Sherrod Brown. Two government agencies, the Securities and Exchange Commission and the Commodity Futures Trading Commission, have taken on the FTX bust.
But this isn’t the first time Washington has been late in the digital age. The bursting of the dot-com bubble caught politicians off guard, as did Facebook’s data protection breaches. The crypto sector has been able to proliferate for years, but it has long since arrived in the mainstream: According to the White House, 40 million adult Americans deal with crypto currencies.
Attempts to regulate the industry have been rather soft. Possibly also because Bankman-Fried is extremely well connected in Washington and, according to “Bloomberg”, lobbied successfully. Recently, NBC reported, FTX bought a mansion near Congress and held receptions – with vegan canapés, Bankman-Fried eats no animal products.
The 30-year-old successfully marketed himself as a “crypto prodigy.” It was only in April that SBF invited to the “Crypto Bahamas” industry conference on the Caribbean island at a sunny 27 degrees.
In Nassau he stood on the big stage in his standard outfit: baggy shorts, gray T-shirt, tennis socks. “Actually, I’m not awake at this time,” he joked as he and Anthony Scaramucci greeted the guests at the exclusive event at nine in the morning.
Scaramucci was spokesman for ex-US President Donald Trump for a few days in 2017. His hedge fund Skybridge Capital invested in various crypto areas. In addition to SBF, he was co-host of the conference in the Bahamas. “The future will come, whether you like it or not,” said Scaramucci, who was on stage in a tailored suit.
>> Read here: FTX founder Sam Bankman-Fried is said to have diverted $300 million out of $420 million in investor money
Also on stage in the chilled conference center: former US President Bill Clinton and former British Prime Minister Tony Blair, both engaged in lively conversation with SBF about the crypto industry and the state of the planet. Usually, the ex-politicians are royally rewarded for such appearances.
Because the Democrats got the lion’s share of the FTX donations, they are now under fire from the Republicans. Bankman-Fried “invested his ill-gotten gains in the Democratic Party,” said Senator Josh Hawley. Biden’s party is “obsessed with climate risks instead of protecting investors,” blasphemed MP Andy Barr.
After all: A few beneficiaries of SBF’s willingness to donate have now reacted. Some senators and representatives want to pass the money on to charity.
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