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Mr. Crypto goes to 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.

Joe Biden

After spending more than $10 million to help elect Joe Biden, SBF became the second-largest donor to Democrats — and landed a meeting in the White House.

AP Photo/Matt Slocum, File

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…

Read More: Mr. Crypto goes to Washington

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