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Sam Bankman-Fried and Allies’ Political Donations Under Scrutiny by US

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WASHINGTON — Federal prosecutors in Manhattan are in search of information from Democrats and Republicans about donations from the disgraced cryptocurrency entrepreneur Sam Bankman-Fried and two former executives at the businesses he co-founded.

In the times after Mr. Bankman-Fried was arrested on Monday and charged with violations including a serious campaign finance scheme, the prosecutors reached out to representatives for campaigns and committees that had received hundreds of thousands of dollars from Mr. Bankman-Fried, his colleagues and their firms.

A law firm representing a few of an important Democratic political organizations — including the party’s official campaign arms, its biggest super PACs and the campaigns of high-profile politicians reminiscent of Representative Hakeem Jeffries — received an email from a prosecutor in the USA attorney’s office for the Southern District of Latest York. The e-mail sought details about donations from Mr. Bankman-Fried, his colleagues and firms, in accordance with people acquainted with the request, who insisted on anonymity to debate an ongoing law enforcement matter.

The prosecutors have reached out to representatives of other Democratic campaigns that received money linked to the cryptocurrency exchange FTX, which Mr. Bankman-Fried co-founded, in accordance with two other people acquainted with the matter. Prosecutors are also investigating donations to Republican campaigns and committees by one other FTX executive who was a top financier on the precise, in accordance with an individual acquainted with the situation.

Thus far, Mr. Bankman-Fried is the one executive to face charges. Since emerging as a number one political megadonor within the months before the 2020 election, he has donated nearly $45 million, primarily to Democratic campaigns and committees which are now scrambling to distance themselves.

There has not been any suggestion that political campaigns and groups engaged in wrongdoing related to the donations they received. The Justice Department’s inquiries seem like an effort to assemble evidence against Mr. Bankman-Fried and other former FTX executives, moderately than against their political beneficiaries.

However the prosecutors’ requests widen what has quickly grow to be one in every of the largest campaign finance scandals in years, as each Democrats and Republicans grapple with questions on their eagerness to tap right into a stream of money from a murky and largely unregulated industry that emerged suddenly as a strong political player.

The fallout has been swift and is simply growing, as lawmakers, operatives for political motion committees and their lawyers try to reduce the damage.

Some politicians — including Mr. Jeffries, the incoming Democratic leader within the House, and Representative-elect Aaron Bean, a Republican from Florida — either returned donations linked to FTX or gave the cash to charity after the corporate became embroiled in scandal. Other groups say they’re setting the money aside for possible restitution to victims of the alleged scheme.

What to Know About the Collapse of FTX

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What’s FTX? FTX is a now bankrupt company that was one in every of the world’s largest cryptocurrency exchanges. It enabled customers to trade digital currencies for other digital currencies or traditional money; it also had a native cryptocurrency often called FTT. The corporate, based within the Bahamas, built its business on dangerous trading options that aren’t legal in the USA.

Who’s Sam Bankman-Fried? He’s the 30-year-old founding father of FTX and the previous chief executive of FTX. Once a golden boy of the crypto industry, he was a serious donor to the Democratic Party and known for his commitment to effective altruism, a charitable movement that urges adherents to offer away their wealth in efficient and logical ways.

How did FTX’s troubles begin? Last 12 months, Changpeng Zhao, the chief executive of Binance, the world’s largest crypto exchange, sold the stake he held in FTX back to Mr. Bankman-Fried, receiving quite a lot of FTT tokens in exchange. In November, Mr. Zhao said he would sell the tokens and expressed concerns about FTX’s financial stability. The move, which drove down the worth of FTT, spooked investors.

What led to FTX’s collapse? Mr. Zhao’s announcement drove down the worth and spooked investors. Traders rushed to withdraw from FTX, causing the corporate to have a $8 billion shortfall. Binance, FTX’s fundamental rival, offered a loan to avoid wasting the corporate but later pulled out, forcing FTX to file for bankruptcy on Nov. 11.

Why was Mr. Bankman-Fried arrested? FTX’s collapse kicked off investigations by the Justice Department and the Securities and Exchange Commission focused on whether FTX improperly used customer funds to prop up Alameda Research, a crypto trading platform that Mr. Bankman-Fried had helped start. On Dec. 12, Mr. Bankman-Fried was arrested within the Bahamas for lying to investors and committing fraud. The day after, the S.E.C. also filed civil fraud charges.

Prosecutors said FTX was a “house of cards” through which Mr. Bankman-Fried and others diverted customer money to purchase expensive real estate within the Bahamas, spend money on other cryptocurrency firms, provide themselves with personal loans and make political contributions of tens of hundreds of thousands of dollars intended to influence policy decisions on cryptocurrency and other issues.

The indictment of Mr. Bankman-Fried accuses him of conspiring with unnamed others to violate campaign finance laws that prohibit corporate donations to candidates’ campaigns and bar donations “within the names of other individuals,” commonly often called straw donations. He can be charged with wire fraud, money laundering and securities fraud related to his management of FTX and one other company he co-founded, Alameda Research.

At a news conference on Tuesday, Damian Williams, the USA attorney for the Southern District of Latest York, called on “any person, entity or political campaign that has received stolen customer money” to “work with us to return that cash to innocent victims.”

Federal Election Commission regulations require political campaigns and committees to offer back donations which are later determined to be illegal, even when the funds have already been spent and latest money must be raised to pay for the refunds.

The thought behind the law “is to essentially get tainted money out of the system, even when the committees that accepted it aren’t at fault,” said Sean J. Cooksey, an F.E.C. commissioner.

But that could possibly be difficult for some political campaigns and committees, since the donations were amongst their biggest and since such groups typically spend just about all of their money within the run-up to major elections.

More revelations are expected as previously undisclosed donations linked to Mr. Bankman-Fried, FTX and Alameda are exposed. As an illustration, a Biden-allied nonprofit group called Future Forward USA Motion, which is registered under a bit of the tax code that doesn’t require it to reveal its donors, received $1.65 million that was linked to FTX, in accordance with an individual acquainted with the funding.

The group’s PAC arm, which is required to report its donors, previously disclosed that in 2020, it received $5 million from Mr. Bankman-Fried and $1 million from one other former FTX executive, Nishad Singh, out of a complete of greater than $150 million raised ahead of that 12 months’s election.

Critics of the outsize role of massive money in politics, in addition to skeptics of cryptocurrency, have seized on the donations as further evidence that the campaign finance regulatory landscape is riddled with loopholes that create what is actually a pay-to-play system with only the veneer of transparency.

“It shows fundamental weakness in our campaign finance laws,” said Craig Holman, an official on the watchdog group Public Citizen who focuses on ethics, lobbying and campaign finance rules. “And on the receiving end, you’ve got candidates and officeholders who must have been suspicious of the sudden influx of funds from the crypto industry.”

The prosecutors are in search of information related to donations to dozens of campaigns and political committees, not only from Mr. Bankman-Fried but additionally from FTX and Alameda, in addition to from Mr. Singh and Ryan Salame, one other former FTX executive, in accordance with the people acquainted with the request.

The e-mail was sent to the Elias Law Group, a firm began last 12 months by one in every of the Democratic Party’s top lawyers, Marc E. Elias, that has quickly emerged because the leading political law firm on the left.

Mr. Elias’s firm didn’t reply to requests for comment.

The e-mail asks for records that could possibly be used to find out whether the FTX executives lied of their responses to disclaimers commonly featured on political committee web sites. The disclaimers ask donors to attest that the cash they’re giving is their very own, and that they aren’t being reimbursed by a company or one other person, which can be illegal.

The FTX executives had given few donations before they burst onto the big-money political scene within the weeks before the 2020 election, as their company was expanding. Since then, Mr. Bankman-Fried’s donations went primarily to Democratic campaigns and committees, while Mr. Singh gave nearly $9.7 million, mostly to the party’s candidates and groups.

The sudden collapse of the crypto exchange has left the industry stunned.

Mr. Salame donated $24 million, primarily to Republican candidates and committees.

Whilst a bunch linked to Mr. Salame promoted him as a “budding Republican megadonor” this 12 months, he told an activist who raised money from the cryptocurrency industry that he was not particularly eager about politics and suggested that his donations had been encouraged by others at FTX, the activist said.

Other individuals who worked with FTX executives had privately expressed concern in an encrypted group chat, images of which were reviewed by The Latest York Times, about whether donations from Mr. Bankman-Fried and Mr. Singh were made in compliance with campaign finance rules.

Mr. Salame and his lawyer didn’t reply to requests for comment. Neither did Mr. Singh nor a spokesman for Mr. Bankman-Fried.

Groups funded by Mr. Bankman-Fried or his associates donated to no less than one nonprofit organization focused on reducing the role of cash in politics and increasing its transparency. That group, the Campaign Legal Center, received a complete of $2.5 million last 12 months from groups linked to Mr. Bankman-Fried. The middle’s board voted on Friday to place the cash right into a separate account “until instructions are received from bankruptcy courts,” Brendan R. Quinn, a spokesman for the middle, said in an announcement.

Mr. Quinn said the middle had accepted the funding “after careful vetting,” including conferring with other nonprofit organizations that “vouched for his apparent legitimacy on the time,” but he added that the allegations against Mr. Bankman-Fried “betray C.L.C.’s mission.”

The political groups represented by Mr. Elias’s firm that received funding from FTX executives include the Democratic National Committee, which received lots of of 1000’s of dollars from Mr. Bankman-Fried; the Democratic Congressional Campaign Committee, which received $250,000 from him; and the Democratic Senatorial Campaign Committee, which received greater than $100,000 from him and Mr. Singh.

The D.N.C. and D.S.C.C. said in separate statements that they were setting aside the cash and intended to return it “as soon as we receive proper direction within the legal proceedings.”

Returning the cash could possibly be easier said than done for among the groups that received larger donations from FTX officials. As an illustration, House Majority PAC, a number one super PAC that supports Democratic House candidates and is represented by the Elias Law Group, received $6 million from Mr. Bankman-Fried, however the group ended last month with lower than $500,000 within the bank.

In an announcement, the group, which spent upward of $180 million on this 12 months’s elections, said it was “watching and waiting for guidance from the federal government in the continuing legal proceedings, and maintains our fullest commitment to complying with the law.”

Precedent for the present campaign finance controversy are limited.

A much smaller-scale example occurred when, from 2002 to 2014, the corporate Cancer Treatment Centers of America reimbursed its executives for political contributions totaling about $700,000 to greater than 30 campaigns. Though the F.E.C. found no evidence that the recipient committees knew of the scheme, they were nonetheless required to offer up the cash after the corporate acknowledged the violations in 2017 and paid a civil penalty of $288,000. It took several years for all of the committees that received the illegal money to do away with it.

Karl J. Sandstrom, a former member of the F.E.C., said the FTX case had the potential to be “the most important corporate conduit case we now have had.”

Mr. Sandstrom, who advises Democratic campaigns and committees for the law firm Perkins Coie, where Mr. Elias was previously a partner, said he was advising clients to place money in escrow matching the amounts they received from Mr. Bankman-Fried.

Mr. Sandstrom said he had not received any inquiries from the Justice Department “yet.”

Kenneth P. Vogel reported from Washington, and Ken Bensinger from Los Angeles.

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