Federal authorities on Tuesday charged FTX co-founder Sam Bankman-Fried with using tens of millions of dollars in client funds to make illegal political donations to Democratic and Republican candidates.
Prosecutors said that one of the reasons he made those contributions was to influence the direction of policies and laws affecting the cryptocurrency industry.
IBankman-Fried diverted client assets held by FTX, a major cryptocurrency exchange, to its separate crypto hedge fund Alameda Research, the Securities and Exchange Commission accused in a civil complaint in federal court in Manhattan.
He then used those funds to make “large political donations,” make investments, and buy “lavish real estate,” according to the SEC complaint.
Bankman-Fried “used Alameda as his personal piggy bank” for these purposes, the SEC said.
A separate but related federal indictment alleges that Bankman-Fried and others violated numerous federal campaign finance laws, including making donations of at least $25,000 to campaigns and political action committees “on behalf of others.” .
Prosecutors said there was a conspiracy by Bankman-Fried and others to also make “corporate donations” to candidates and political action committees in New York “reported on someone else’s behalf,” according to the indictment.
That indictment, also filed in Manhattan federal court, includes additional conspiracy and fraud allegations against the 30-year-old.
In a letter Tuesday to Judge Ronnie Abrams, a federal prosecutor wrote: “The government expects that evidence will show that the defendant defrauded FTX clients by misusing their funds for his personal use, including investing for his own account.” to earn tens of millions of dollars in political donations.”
The prosecutor wrote that the alleged system allowed Bankman-Fried to circumvent limits on the amount of money that individuals can donate to campaigns, “corporate donation limits, and reporting requirements for donations.”
The scheme also allegedly served “in the service of the defendant’s desire to influence the direction of policy and legislation in the cryptocurrency industry,” the prosecutor wrote.
The campaign finance allegations come days after a private surveillance group asked the Federal Election Commission to investigate Bankman-Fried’s political contributions.
The watchdog, Citizens for Responsibility and Ethics in Washington, said Bankman-Fried admitted he donated so-called dark money to Republican-aligned groups during the 2022 primary season. These donations would not have been disclosed in the FEC filings.
CREW’s complaint cites an interview with Bankman-Fried, known as SBF, which suggests he may have donated as much as $37 million or more to campaign efforts related to the GOP in order to legally mandate disclosure of those posts to avoid.
Most of Bankman-Frieds publicly announced campaign contributions, totaling nearly $40 million in the 2022 election cycle2, went to Democrats, FEC records show.
But FTX donated $1 million to the Senate Leadership Fund, a super PAC that works with Republican Senate Minority Leader Mitch McConnell of Kentucky.
The source of this post is West Realm Shires Services, trading name of FTX, according to the file.
West Realm Shires Services also donated $750,000 to the Congressional Leadership Fund, a Super PAC that supports Republicans running for seats in the House of Representatives and supported by the Republican leadership in the House of Representatives.
Richard Painter, a former White House ethics attorney, told CNBC: “The indictment doesn’t give many details — or tell us who the other people involved in the conspiracy to violate campaign finance laws are — but what they allege , is a straw man donor scheme similar to what [conservative commentator] Dinesh D’Souza has been charged.”
Painter noted that Bankman-Fried was known to coordinate some of his political donations with his mother, Stanford law professor Barbara Fried, who previously headed a political action committee called Mind the Gap.
There have been no allegations that Mind the Gap was involved in any illegal activity.
But Painter said, “Of course, those campaign contributions from SBF and PAC funds raised by members of his family bought a tremendous amount of influence in Washington.”
“The question is whether regulators, including the SEC, have refrained from aggressively investigating FTX because of this political influence,” Painter said. “I would also like to know whose campaigns took the money. Did you know about the system?”
Painter said another question is whether politicians who received donations from Bankman-Fried talked about regulating the cryptocurrency markets.
“A number of politicians from both parties have been in contact with the SEC and other regulators about crypto, often arguing against aggressive investigations and regulations,” Painter said.
Follow CNBC’s live blog on Tuesday’s hearing on the collapse of cryptocurrency exchange FTX before the House Financial Services Committee.