Inside Sam Bankman-Fried’s attempted takeover of DC

This essay is an excerpt from Cryptomaniathe newly released book by TIME technology correspondent Andrew R. Chow, which chronicles the rise and fall of crypto in the pandemic era, and tycoon Sam Bankman-Fried.

In 2022, it was difficult to walk through Washington without seeing Sam Bankman-Fried’s face. Although the press often praised him for his humility, the founder and CEO of cryptocurrency exchange FTX placed advertisements for himself throughout the city, especially in areas where congressional staffers could walk to work, such as Union Station. Although Sam still lived in the Bahamas to avoid regulation, he traveled from Nassau to Washington, D.C., every week or two to meet with lawmakers and regulators, making a power play for the nation’s capital.

After FTX’s fall, theories arose about Sam’s bigger plans in Washington. Some speculated that he was planning to move FTX back to American soil and make concessions to make it the largest crypto company in the country. Others believed that he himself was laying the foundation for a political career. A less charitable theory was that he hoped to preemptively seek federal leniency for illegal activity he knew he was already committing.

Whatever Sam’s long-term goals were, he made his short-term goals quite evident: he hoped for a friendlier regulatory climate for crypto companies in the US so he could sell more crypto products to Americans. Getting favorable legislation seemed feasible in 2022, given how much national enthusiasm there was around cryptography — and how little lawmakers actually understood it.

Sam’s approach to Washington was twofold. The first was a charm offensive, involving appearances at high-profile hearings and closed-door meetings with members of Congress and regulatory officials. The second was a blitzkrieg of donations to crypto-friendly candidates, led by Sam’s younger brother Gabe. Sam’s money and sudden ubiquity in Washington sent shockwaves through the Democratic Party establishment. “Washington is a place where the power structure is more or less defined,” says a former Treasury Department official. “And Sam interrupted everything.”

See more information: The bombshell evidence that led to Sam Bankman-Fried’s conviction

Sam has testified several times before Congress, with his first appearance in December 2021. At this time, around $15 billion in assets were traded daily on FTX and its market share was growing rapidly. Sam used his testimony to argue that crypto has improved traditional finance and that FTX has improved crypto. He criticized the way the 2008 financial crisis was precipitated by “personalized and undeclared bilateral transactions” piled on top of each other, enveloping the entire financial system with hidden risks. FTX, on the other hand, boasted a “risk engine”: a set of automated tools to minimize unforeseen losses and eliminate bad actors from the system, Sam said. He added that if too many customers made bad bets, FTX would have a $250 million insurance fund to absorb customer losses. FTX’s financial cushion and cutting-edge technology, he argued, “would ensure that a loss-free customer could redeem their assets from the platform on demand.”

Many lawmakers found his speeches persuasive. “It sounds like you are doing a lot to make sure there is no fraud or other manipulation,” Rep. Tom Emmer, who was elected GOP majority leader in 2022, told him at the December 2021 hearing.

“There were a lot of stars in the eyes of people watching this: people on both the Democratic and Republican sides who were very excited about the SBF,” says congressional staffer Devina Khanna.

But virtually none of the above descriptions of Sam’s business dealings, which he gave under oath, were true. Although he tried to portray FTX as the opposite of the shadow banks of the 2000s, he mirrored their actions, leveraging and repackaging dubious and risky assets. Although FTX’s risk engine was innovative and quite effective, Sam knew that only one account was exempt from being automatically liquidated: his own trading firm, Alameda Research. This team, run by Sam’s on-again, off-again girlfriend Caroline Ellison, could obtain a virtually unlimited line of credit from FTX without being flagged for internal review and use it to make increasingly larger trades. At this point, Alameda was already secretly borrowing billions of dollars from FTX’s pool of money. The insurance fund advertised by Sam was also false. Although the FTX website stated at the time that the platform had $250 million saved for a rainy day, that number was completely made up and generated by a bit of code.

As Sam stood before the senators, he enlisted his younger brother, Gabe, to help bring new crypto-friendly faces to the halls of Congress. The brothers created a nonprofit called Guarding Against Pandemics and an affiliated super PAC called Protect Our Future. Sam quickly funneled $27 million into the PAC, whose ostensible aim was to promote candidates who prioritized anti-pandemic research and prevention. “He thought it was very effective, that you could get very high returns in terms of influence by spending relatively small amounts of money,” Ellison, who later pleaded guilty to fraud charges, testified about Sam’s fundraising.

Early on, Protect Our Future supported candidates who seemed prepared to protect themselves against future pandemics. But D.C. insiders say that late in the campaign cycle, a clear pattern of Bankman-Frieds donations emerged, based not on ideology but on the likelihood of victory. “They changed it to ‘We’ll give $500,000 to anyone who already has this locked away – that way they’ll be forever indebted to us,’” a DC agent told me. “There has been no ideological consistency about who they gave money to in the last four to five months. It was much more silly than strategic: more Veep what West wing.”

Sam ended the 2022 election cycle as the third-largest individual Democratic public donor in the midterm elections, behind only Michael Bloomberg and George Soros. But he also secretly financed Republicans. “We will be investing heavily to weed out anti-crypto Democrats for pro-crypto Democrats and anti-crypto Republicans for pro-crypto Republicans,” wrote Ryan Salame, an FTX executive and one of Sam’s closest allies in the Bahamas, to a confidant in a text.

FTX’s financial influence campaign largely unfolded in a Signal group chat. Sam was in the chat, as was FTX lead engineer Nishad Singh, who has raised $14 million in donations to the Democrats — although he complained in messages about having to support “explicitly agreed-upon things” like the LGBT Victory Fund. Salame, in turn, transferred more than $23 million to Republicans in 2022, including the most to Tom Emmer. (FTX also distributed $200,000 to New York Republican Michelle Bond, a congressional candidate endorsed by Donald Trump Jr. who happened to be Salame’s girlfriend.) Financial forensic experts would later trace much of the money to political donations – apparently donated by Singh and Salame – back to Alameda bank accounts and then to transfers taken from FTX customer deposits.

Sam was playing both sides: a logical end point to his nihilistic approach. The ideological principles of the candidates he gave money to didn’t matter. All that mattered was that he himself continued to accumulate power. Many other crypto executives saw Sam’s successes in Washington and followed his lead: More than $26 million flowed from crypto companies into political races in 2021 and the first quarter of 2022, surpassing spending by Big Pharma, Big Tech and of the defense industry.

In all, an astonishing 196 members of Congress – more than a third of all senators and representatives – received money from Sam Bankman-Fried or other senior FTX executives. And Sam announced that he had only scratched the surface of his generosity: that he wanted a $1 billion “soft cap” for the 2024 elections.

It seemed as if a new kingmaker had arrived in Washington. But by the end of the year, Sam Bankman-Fried would be in handcuffs.