How crypto billionaire Sam Bankman-Fried conquered Washington
Early last month, Washington was abuzz with rumors about Sam Bankman-Fried's coming Christmas party.
Bankman-Fried, the CEO of the cryptocurrency exchange FTX, was preparing to host a blowout celebration. The details were a closely held secret, but politicos gossiped about which musical artists might headline, and whether Tom Brady - the legendary football champion turned FTX evangelist - might make an appearance.
"They were planning on having a party of the century," recalls Miller Whitehouse-Levine, the policy director of the DeFi Education Fund, a crypto nonprofit. "The talk on the town was it's going to be the craziest DC Christmas party ever."
The all-out holiday bash was designed to serve as the triumphant capstone of two years of lobbying and networking by Bankman-Fried. Even by the ethically challenged standards of Washington, the 30-year-old billionaire had devoted an unprecedented level of time and money to influencing the regulators and lawmakers responsible for overseeing his business. He established himself as one of the Democratic Party's most generous donors, second only to George Soros. He funded a nonprofit advocacy group that engaged in partisan political lobbying, throwing lavish parties at a $3 million townhouse it purchased in Washington. And relying on the infamous "revolving door" between regulatory agencies and the companies they regulate, he hired a team of former federal officials to help him shape federal policy to his advantage.
"I think it's safe to say that he was, by far, the most engaged crypto CEO in Washington," says Adam Kovacevich, the CEO of Chamber of Progress, a trade group that FTX was a member of before its collapse.
For his efforts, Bankman-Fried made significant headway in pushing legislation that would have allowed exchanges like FTX to effectively self-regulate, making their own determination about whether the cryptocurrencies on their platforms complied with federal rules. He also worked to steer regulatory oversight of crypto to an agency with a far smaller enforcement staff than the Securities and Exchange Commission. Washington was largely asleep at the switch when it came to crypto, giving Bankman-Fried an opportunity to drive the train.
Now, in the weeks since FTX was forced to declare bankruptcy, there has been much hand-wringing about the financial house of cards that Bankman-Fried built. What happened to billions of dollars in corporate funds that remain unaccounted for? Why didn't FTX's investors ask tougher questions about the business? What will become of all the backers and customers who have been wiped out in the crypto meltdown?
But in the midst of the financial devastation, one question remains largely unanswered: Why didn't the numerous regulatory agencies and congressional committees that are charged with safeguarding financial investors and consumers catch on to what was happening at FTX? How was Bankman-Fried, a millennial trader turned entrepreneur now facing numerous government investigations, able to so quickly and deftly infiltrate the most closely guarded corridors of power in Washington? Why did the system of regulatory oversight set in place nearly a century ago, after a banking crash plunged America into the Great Depression, fail so spectacularly?
The answer is simple, according to more than a dozen Washington insiders, FTX employees, and crypto industry observers who spoke with Insider. Over the past two years, Bankman-Fried set out to rig a notoriously rigged system through a potent mix of charm, charitable giving, and political contributions. From planning the "party of the century" to crafting industry-friendly legislation, SBF made himself a mover and shaker in Washington to a degree that other CEOs only dream of.
"He understood that Washington, in particular, can be wooed through aggressive fundraising and political giving," says Eric Soufer, a partner who leads the crypto and fintech practices for the strategic communications consultant Tusk Strategies. "And that opens a ton of doors."
In FTX's early days, according to current and former employees, Bankman-Fried showed few signs of the vaunting ambition that would come to define his career. After graduating from MIT, the socially awkward 20-something worked in traditional finance for Jane Street, the high-frequency-trading shop, before opening his own crypto trading firm, Alameda Research. When he couldn't find a crypto exchange that offered the services he wanted, he launched FTX. The company, says one former employee, started "pretty 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 concentrated on developing FTX's core product.
It wasn't long, though, before he began to broaden his horizons. Long a disciple of effective altruism, a school of thought that holds that people should use data and rationality to guide their morality and charitable giving, Bankman-Fried decided to bring the Silicon Valley philosophy to bear on the political sphere as well.
When it came to Washington, he already had family connections to draw on. In 2018 his mother, the Stanford law professor Barbara Fried, had founded a political action committee called Mind the Gap, which advises Democratic donors on which candidates and causes to support. To guide its recommendations, the PAC employs what it calls "rigorous research" and "quantifiable metrics" - a mindset that echoes Bankman-Fried's philosophy of effective altruism.
"His mom was running a PAC," says a former crypto executive who spent time lobbying in Washington. "So there is a comfortability and familiarity with the importance of access in DC."
In addition to his mother's influence in Democratic circles, Bankman-Fried had another resource that opens doors in Washington: lots and lots of money. In 2020 his firms, FTX and Alameda Research, contributed more than $10 million to Joe Biden's campaign. That kind of cash, especially from a newcomer, made instant waves in Washington. SBF had arrived.
To hear Bankman-Fried tell it, helping to put Biden in the White House convinced him that politics was a worthwhile investment. "My goal," he told Recode not long after Biden took office, "is just to find out how I can do the most good. And I had a long list of things to look at, at least briefly. And politics has always been on that list, and I've been fairly skeptical of it. It sort of had the hallmarks of something that would be just overcrowded, not that impactful, and like a trap for dollars in general. And so that's the way I thought before looking into it."
Now, fresh off the 2020 election, Bankman-Fried threw himself into politics in earnest. Part of the influence he exerted was due to Guarding Against Pandemics, an initiative he funded to improve America's preparedness for infectious-disease outbreaks. Directed by his younger brother, Gabriel, the nonprofit advocacy group quickly established itself as a power center in Washington circles. Earlier this year, Puck reported, the group spent $3.3 million to purchase a four-story townhouse in the Capitol Hill neighborhood and used it to host high-profile political parties, including a Democratic Night and a Republican Night.
And what did Bankman-Fried expect in return for his party favors and political contributions? All he was looking for, he told Recode, was "the place I could be most useful" to Biden. Then, in a telling aside, he offered another thought.
"I don't think Biden's ever going to put much thought into it," he said. "But if [the administration] is ever looking for, like, an expert on crypto regulation…."
It sounded like a joke. But Bankman-Fried, it turns out, had just revealed his new job description.
Ever since crypto burst on to the scene, morphing in just a few short years into a new financial superpower, Washington has struggled to keep pace. To make matters worse, two separate agencies - the Commodity Futures Trading Commission and the Securities and Exchange Commission - have been engaged in a turf war over who will lead oversight of the burgeoning crypto industry. Regulation was clearly coming to exchanges like FTX. The only question was: Which agency would be chosen to guard the digital henhouse from the crypto foxes?
If you were a crypto billionaire in favor of less stringent regulation, your clear choice would be the Commodity Futures Trading Commission. The CFTC, which works primarily with professional traders, has a staff of only 700. The SEC, which is charged with protecting individual investors, boasts a staff of 4,500. The CFTC's enforcement staff is even tinier - some 170 attorneys spread across the entire agency, compared with the 50 lawyers and analysts whom the SEC devotes exclusively to crypto. What's more, Gary Gensler, the chair of the SEC, is a crypto skeptic who has brought numerous enforcement actions against crypto companies, going after everyone from the crypto giant Ripple to the mega-influencer Kim Kardashian.
FTX was a crypto exchange, facilitating buy and sell orders for crypto-focused hedge funds and other professional traders. But Bankman-Fried had bigger ambitions. In May, when the firm launched a product for buying US stocks, the FTX executive Brett Harrison told the Financial Times that the goal was to "become the 'everything exchange' and the 'everything app' when it comes to financial services and fintech in general." To do that, Bankman-Fried needed the blessing of US regulators.
In meetings, Bankman-Fried presented himself to lawmakers and regulators as that rarest of creatures: a crypto billionaire who actually favored government oversight of his business. He and his team at FTX "were seen as being very pro-regulatory," says Whitehouse-Levine of the DeFi Education Fund. "That was an impression they actively cultivated, which differentiated them from what certain regulators might consider to be the more intransigent crypto lobby at large. They brought institutional credibility, combined with a message that many people in Washington were eager to hear."
According to a former executive at FTX, Bankman-Fried told Washington insiders that customers would be best served if bitcoin futures and spot markets were regulated by the same agency. He also pointed out that as much as 97% of crypto derivatives activity was happening outside the United States, in less-regulated venues. Bringing that activity onshore, he argued, would strengthen the market and give the US a dominant position in crypto derivatives, much like the one it holds in traditional financial markets.
But while both positions seemed regulatory-friendly, they implicitly favored handing crypto to the CFTC, which oversees derivatives and futures. At the same time, Bankman-Fried went on a shopping spree, hiring the best advisors from the CFTC who money could buy. In August 2021, FTX brought on Ryne Miller, a former lawyer for the commission. That November, it hired Mark Wetjen, a former CFTC commissioner who had long advocated the agency's involvement in the crypto industry, to serve as its head of policy. It also retained J. Christopher Giancarlo, a former CFTC chair who is now a partner at Willkie Farr & Gallagher, a white-shoe law firm that counted Thomas Edison among its earlier clients.
Most of the team was in place when, on a Tuesday that October, Bankman-Fried met with Gensler. The SEC chair had asked crypto exchanges to come through the front door and voluntarily register with the agency. Joining Bankman-Fried in the meeting, according to the chair's calendar, were Miller, Giancarlo, and Harrison, FTX's president of US operations.
Over the course of that meeting and others, FTX executives made several proposals about how they thought crypto exchanges should be regulated. One idea was to register the operations as an alternative trading system, a venue commonly known as a dark pool. That would have given the SEC oversight, according to a person with knowledge of the proposal, and put FTX on the path to becoming the first fully regulated crypto exchange. But Gensler and his staff didn't like the idea, which would have resulted in less regulation for crypto exchanges. They countered by suggesting FTX register as a so-called Form 1 national security exchange, which would subject the company to more stringent rules.
Bankman-Fried was undeterred. Unlike other crypto CEOs who avoided or even antagonized regulators, including Changpeng Zhao of Binance and Brian Armstrong of Coinbase, he decided to embark on an all-out charm offensive. According to those who attended meetings where he spoke, Bankman-Fried presented himself to Washington insiders 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. Despite Gensler's protestations, he even managed to make inroads with the SEC staff, according to a person familiar with the relationships.
All told, Bankman-Fried recently told The New York Times, he spent "thousands of hours" in the nation's capital trying to woo regulators. "That was not a money thing," he insisted. "That was elbow grease. That was just asking again and again to have meetings with relevant regulators and submitting hundreds of thousands of pages of documents." His keenness to engage - and the outsize wealth and celebrity that accompanied him - enamored him to Washington. "An industry needs a leading voice to act on behalf of the industry," the former crypto executive says. "He was a willing resource."
As Bankman-Fried met with regulators, he also began splashing huge amounts of money around in political and philanthropic circles. Over the 18 months before FTX's implosion, he donated some $40 million to election campaigns and PACs, most of it in support of Democratic candidates. Others on his team, meanwhile, invested heavily on the other side of the aisle. Ryan Salame, a senior executive at FTX, donated $23 million, most of it to Republican efforts.
The money didn't go unnoticed. In March, as The American Prospect reported, eight members of Congress - four Republicans and four Democrats - wrote a letter to the SEC that questioned its authority to require crypto companies like FTX to provide information to the agency. FTX employees had donated between $2,900 and $11,600 to five of the signers. The company and Salame combined had given $2.75 million to a super PAC associated with the National Republican Congressional Committee, which is headed by the letter's lead signatory, Rep. Tom Emmer.
Bankman-Fried also spent more than $1.5 million on Washington lobbyists to promote his interests. FTX put Conaway Graves Group, Empire Consulting Group, Rich Feuer Anderson, and T Cap Solutions on the payroll, while Bankman-Fried's advocacy group Guarding Against Pandemics hired Van Scoyoc Associates, Capitol Counsel, Ogilvy Government Relations, and Ridge Policy Group. In the second and third quarters of this year, according to lobbying disclosures, FTX paid $540,000 in fees to lobbyists.
At the same time, FTX was also handing out huge sums in charitable donations, which served to bolster its political aims. The company managed the FTX Future Fund, a philanthropic endeavor that claims to have given out more than $190 million, and it continued to dispense money through Guarding Against Pandemics. The dual initiatives - feel-good philanthropy combined with old-fashioned politicking - made it hard for politicians to ignore Bankman-Fried's requests for meetings. According to one person familiar with those sessions, cryptocurrencies and pandemics would sometimes come up in the same conversation.
Bankman-Fried has insisted his political giving was purely selfless, driven by an altruistic desire to support candidates who're "outspoken in favor of doing things now to prevent the next pandemic." But others say the message of combining philanthropy and politics was crystal clear to everyone involved. "Most people's sense was that they were distinct but not entirely unrelated," says Soufer of Tusk Strategies. "Remember, SBF fashioned himself as a high-water mark for the contemporary philanthropist. I don't think anyone believed that he was going to fund candidates who were, quote unquote, committed to ending pandemics who were also hostile to the crypto industry."
To politicians who knew little to nothing about how crypto works, Bankman-Fried seemed like the Steve Jobs of digital assets. FTX was backed by top-tier venture capitalists like Sequoia Capital and Tiger Global Management. "Their investors brought a lot of credibility," says Whitehouse-Levine of the DeFi Education Fund. The company organized Crypto Bahamas, a glitzy Caribbean conference where Bankman-Fried rubbed shoulders with Bill Gates and Tony Blair, and he gave speeches at think tanks like the Bipartisan Policy Center. He wooed the media, investing in the buzzy global news startup Semafor, donating $5 million to ProPublica, and helping to fund a vertical on Vox focused on effective altruism. He even talked to Elon Musk about investing in Twitter, and had previously bought up some of the company's stock "with an eye toward acquiring Twitter himself," Semafor reported.
An advisor to Bankman-Fried put it succinctly. "Think about if you're doing Marc Benioff slash Bill Gates - like you're building basically the reputation as a philanthropist, a political donor, a power broker, and an entrepreneur, all at the same time. So you're doing Gates, Soros, Bloomberg, all while you're actually building the companies that made them money."
The aura of all the big names who surrounded Bankman-Fried helped paper over his odd behavior. A senior crypto industry figure who attended meetings with him in Washington said lawmakers were sometimes aggravated by the way he presented himself, wearing shorts to meet with elected officials and swearing liberally. "There were many times where he and I would be in the same place and he would fuck up the messaging in front of congresspeople or senators and it was super annoying," the person says. "But I and many others chalked it up to the typical 'he must be super high IQ and low EQ' sort of engineer in Silicon Valley."
FTX also went on a massive branding push, affixing its name to sports stadiums and signing up celebrity spokespeople including Tom Brady, Stephen Curry, and Larry David. The effort turbocharged its name recognition outside traditional crypto circles, says Kevin Werbach, a Wharton business professor who appeared alongside Bankman-Fried at a congressional hearing. "The FTX logo was extraordinarily visible around the world," Werbach says, "even to many people who were not holders of digital assets."
Wooing Washington was an all-fronts war, and Bankman-Fried proved to be a master at waging it. Through his high-profile efforts, he forged a reputation as a crypto genius that made him impossible to ignore in Washington. One of his advisors put it in terms favored by the venture capitalists who were enthusiastically backing FTX: "He just wanted to build this flywheel of domination."
By December 2021, Bankman-Fried had laid the groundwork for an appearance at a congressional hearing on regulating the cryptocurrency industry. Swapping his standard outfit of shorts and a T-shirt for a suit, he sat through questioning before the House Financial Services Committee, bolstering his reputation as the friendly and reasonable face of crypto. Hours later, he was back to his familiar antics on Twitter, where he jested with his die-hard followers about how he had failed to tie his shoelaces properly and how badly he had needed to pee during his testimony.
The following March, Bankman-Fried again visited Gensler at the SEC, flanked by Wetjen, Harrison, and Miller. This time he was also accompanied by Brad Katsuyama and other executives from the IEX exchange, who were considered white knights in the world of high-frequency trading. The meeting didn't go much better than the first one. Before the FTX executives got to the meat of their presentation Gensler interrupted them and went on a lengthy sermon about how he favored a more stringent regulatory approach. The SEC, at least, wasn't buying what Bankman-Fried was selling.
But Bankman-Fried's political giving and philanthropic endeavors earned him an audience at a far more influential institution: the White House. In May, CoinDesk reported, Bankman-Fried met with Charlotte Butash, a policy advisor to Biden's deputy chief of staff, and Steven Ricchetti, a counselor to the president. He was accompanied by Wetjen and Eliora Katz, recently hired as FTX's first in-house lobbyist. In just two short years, Bankman-Fried had gone from a little-known trader in a new industry to having the ear of the president's inner circle.
Rebuffed by the SEC, Bankman-Fried turned his attention to Congress. Over the summer, according to a senior crypto policy official, Bankman-Fried met with lawmakers privately almost every other week to argue for passage of the Digital Commodities Consumer Protection Act, a bill that would give the CFTC a key role in overseeing the crypto industry. He even suggested that the crypto industry might chip in to give the understaffed commission the resources it needed to implement the DCCPA, raising concerns about conflicts of interest.
Others in the sector opposed the measure, saying it was designed to favor FTX's interests over those of its rivals. Many critics cited concerns that it might hurt "DeFi" - decentralized finance projects that compete with exchanges like FTX. "It's not that he was welcoming regulation," says the senior figure in the crypto industry who attended meetings with Bankman-Fried. "It was that he was welcoming terrible, self-interested regulation that would have disadvantaged a lot of other companies."
But while Bankman-Fried was busy wooing Washington, FTX was about to become Exhibit A in the case for more effective oversight of the crypto industry. As the company proceeds through bankruptcy, legal filings paint a grim picture of FTX's inability to control even the most fundamental aspects of its business. The company failed to keep track of what assets it held, or even whom it employed. James Bromley, a lawyer for the company, said in court that FTX was "run effectively as a personal fiefdom of Sam Bankman-Fried." The man many Washington regulators and lawmakers viewed as crypto's foremost expert is now under investigation by some of the same agencies and committees as crypto's biggest con man.
Bankman-Fried was hardly the first CEO to try his hand at the tricky business of cultivating political power. But what surprised veteran observers was the skill and determination with which he went about it - and how swiftly he succeeded. "A lot of this is the playbook," says Niki Christoff, a political consultant in Washington. "But it was done at sort of an accelerated speed - and in a way that was a little kludgy."
As any Silicon Valley engineer knows, a little kludginess is the price you pay for speed. What matters, in the early going, is producing a minimally viable product. And in the wake of Bankman-Fried's spectacular downfall, there are signs he may have accomplished something enduring. While the legislation he helped to bring into being, the Digital Commodities Consumer Protection Act, is given almost no chance of passing this year, some on Capitol Hill continue to support it, even in the wake of FTX's spectacular collapse. Rostin Behnam, who backed the measure as chair of the CFTC, told Congress last week that lawmakers should simply "pause and look at the bill and make sure there are no gaps or no holes." And the bill's sponsors - Sens. Debbie Stabenow and John Boozman - intend to continue pushing for it.
This year, according to federal election records, Stabenow and Boozman received $32,400 in campaign contributions from none other than Sam Bankman-Fried.