Federal authorities on Tuesday charged FTX co-founder Sam Bankman-Fried with using what they said was tens of millions of dollars of misappropriated customer funds to make illegal political donations to both Democratic and Republican candidates.
Prosecutors said one of the reasons he made those contributions was to influence the direction of policies and laws affecting the cryptocurrency industry.
Bankman-Fried diverted customer assets held by FTX, a major cryptocurrency exchange, to his separate crypto hedge fund, Alameda Research, the Securities and Exchange Commission charged in a civil complaint filed in Manhattan federal court.
He then used those funds to make “large political donations,” to make investments and buy “lavish real estate,” the SEC complaint alleged.
Bankman-Fried “used Alameda as his personal piggy bank” for those purposes, the SEC said.
A separate but related federal criminal indictment accuses Bankman-Fried and others of violating numerous federal campaign finance laws by, among other things, giving contributions of at least $25,000 to campaigns and political action committees “in the names of other persons.”
Prosecutors said there was a conspiracy by Bankman-Fried and others to also make “corporate contributions” to candidates and political action committees in New York “that were reported in the name of another person,” according to the indictment.
That indictment, which likewise was filed in Manhattan federal court, includes other conspiracy and fraud counts against the 30-year-old.
“All this dirty money was used in service of Bankman-Fried’s desire to buy bipartisan influence and impact the direction of public policy,” said Damian Williams, the U.S. Attorney for the Southern District of New York, at a press conference.
In a letter Tuesday to Judge Ronnie Abrams, a prosecutor in Williams’ office wrote, “The Government expects that the evidence will show that the defendant defrauded FTX customers by misappropriating their funds for his personal use, including to invest for his own account, to make tens of millions of dollars of political contributions.”
The prosecutor wrote that the alleged scheme allowed Bankman-Fried to evade limits on the amount of money that can be donated by individuals to campaigns, “corporate donation limits and donation reporting requirements.”
The scheme also allegedly “was in service of the defendant’s desire to influence the direction of policy and legislation on the cryptocurrency industry,” the prosecutor wrote.
The campaign finance allegations come days after a private watchdog 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. Those donations would not have been disclosed in FEC filings.
The complaint by CREW quotes an interview with Bankman-Fried, who is known as SBF, that suggests he donated up to $37 million or more to GOP-linked campaign efforts in a manner that avoided legally required public disclosure of those contributions.
Most of Bankman-Fried’s publicly disclosed campaign contributions, which totaled nearly $40 million in the 20222 election cycle, went toward Democrats, FEC records show.
But FTX donated $1 million to the Senate Leadership Fund, a super PAC aligned with Republican Senate Minority Leader Mitch McConnell of Kentucky.
The source of that contribution, according to the filing, is labeled as being West Realm Shires Services, the trading name for FTX.
West Realm Shires Services also contributed $750,000 to the Congressional Leadership Fund, a super PAC that backs Republicans running for House seats and supported by the House Republican leadership.
Richard Painter, a former White House ethics lawyer, told CNBC, “The indictment does not provide a lot of detail — or tell us who the other persons are who were involved in the conspiracy to violate campaign finance laws — but what is alleged is a straw man donor scheme similar to that which [conservative commentator] Dinesh D’Souza was charged with.”
Painter noted that it is known that Bankman-Fried coordinated some of his political donations with his mother, Stanford Law professor Barbara Fried, who previously was the head of a political action committee called Mind the Gap.
There have been no allegations that Mind the Gap was involved in illegal activity.
But Painter said, “These campaign contributions from SBF and PAC money raised by members of his family of course bought an enormous amount of influence in Washington.”
“The question is whether regulators, including the SEC, backed off from aggressive investigation of FTX because of this political influence,” Painter said. “I would also like to know whose campaigns took the money. Did they know about the scheme?”
Painter said another question is whether politicians who received donations from Bankman-Fried had spoken about regulating cryptocurrency markets.
“A number of politicians from both parties were in contact with the SEC and other regulators about crypto, often arguing against aggressive investigations and regulations,” Painter said.
Follow CNBC’s live blog covering Tuesday’s hearing on the collapse of cryptocurrency exchange FTX before the House Financial Services Committee.