Dec 13, 2022 - Politics & Policy

SBF's "dirty money"

Sam Bankman-Fried in handcuffs
Sam Bankman-Fried is escorted out of the Magistrate Court building in Nassau, Bahamas, on Tuesday. Photo: Dante Carrer/Reuters

Disgraced crypto kingpin Sam Bankman-Fried was charged Tuesday with illegally steering tens of millions of dollars to federal political campaigns — a key footnote in what prosecutors are calling "one of the biggest financial frauds in American history."

Why it matters: The campaign finance allegations have intensified the political shockwaves of FTX's collapse and Bankman-Fried's arrest, following his dramatic ascendance as one of the country's most prolific political donors.

  • "All of this dirty money was used in service of Bankman-Fried's desire to buy bipartisan influence and impact the direction of public policy in Washington," U.S. attorney Damian Williams said at a press conference.
  • Bankman-Fried's attorney, Mark S. Cohen, said in a statement that he "is reviewing the charges with his legal team and considering all of his legal options.”

The big picture: Bankman-Fried gave tens of millions to Democratic candidates and groups this cycle. He has said he also made large contributions to Republican political candidates, but did so in a way that hid the donations.

  • "All my Republican donations were dark," Bankman-Fried said in an interview last month.
  • "[R]eporters freak the f**k out if you donate to a Republican because they’re all super liberal. And I didn’t want to have that fight, so I just made all the Republican ones dark."
  • Bankman-Fried estimated he was actually the "second or third biggest" Republican donor in the country during the 2022 midterms but that he was able to shield those donations from public view.

What's happening: The federal indictment unsealed on Tuesday includes eight charges — including one that Bankman-Fried conspired to violate a federal law barring campaign contributions knowingly made in the name of another person.

  • That's what's known as a straw donation, and it's often used to illegally mask the true identity of a political donor by routing his or her contribution through another person or organization.
  • It can also be used by a single donor to circumvent campaign contribution limits by parceling out a large donation among multiple straw donors, or by companies trying to get around corporate donation restrictions by routing money through an individual donor.

In a separate civil complaint, the Securities and Exchange Commission alleged Bankman-Fried illegally steered money from his cryptocurrency trading firm, Alameda Research, to federal political candidates.

  • He "used commingled funds from Alameda to make large political donations," the SEC alleged.
  • By law, corporations are barred from donating to federal political candidates, though they can support some independent political groups.
  • Foreign nationals — including companies, like Alameda, incorporated abroad — are barred from giving to any U.S. political committee.

The intrigue: The Justice Department's indictment and SEC complaint do not name any of the beneficiaries of the donations.

  • But Bankman-Fried's description of the scale of his Republican giving operation suggests they included independent expenditure groups such as super PACs or party committees, since candidates generally can't accept checks larger than $10,000 per cycle from a single source.

Be smart: Many of the country's top super PACs have sister "dark money" nonprofits, which often pass along funds to their political arms without having to disclose where that money came from.

  • Rarely are donors so brazen to state outright that they're giving to the dark money group in order to secretly fund its sister outfit's politicking.

What they're saying: Citizens for Responsibility and Ethics in Washington, a watchdog group that filed an FEC complaint last week alleging an SBF straw donor scheme, said the criminal charges could spur key political money reforms.

  • "I would hope there would be some ground here for at least minimal reforms to improve campaign finance laws," Stuart McPhail, the group's senior litigation counsel, told Axios in an interview.
  • "This guy got a lot of friends in Congress, on both sides of the aisle. He did it pretty quickly. And it just so happened to happen when he was spreading a lot of money around. That's probably not a coincidence."
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