Cryptocurrency mogul Sam Bankman-Fried’s spending in federal elections has candidates and party committees scrambling to either return the money, contribute it to charity, or set it aside for potential victims of Bankman-Fried’s alleged fraud, after Bankman-Fried was arrested in December and charged with a stunning array of financial crimes.
But Bankman-Fried’s influence also extended into state and local elections, albeit to a much more modest degree.
Sam’s younger brother Gabriel Bankman-Fried, head of Guarding Against Pandemics, a political nonprofit that Sam bankrolled; Michael Sadowsky, head of Protect Our Future, Sam Bankman-Fried’s federal super PAC; and Sean McElwee, who advised Protect Our Future, collectively contributed more than $221,000 to several Democratic state and local political campaigns and Democratic Party organs. Of that total, Sadowsky gave more than $150,000, Gabriel Bankman-Fried gave more than $54,000, and McElwee gave more than $15,000.
Guarding Against Pandemics and its de facto federal campaign spending arm, Protect Our Future, had the stated policy goal of securing more federal funding to prevent, and prepare for, pandemics.
In the course of funding these organizations, however, Sam Bankman-Fried was also pursuing a cryptocurrency policy agenda that would enable his cryptocurrency exchange, FTX, to gain greater access to the U.S. market. Achieving this cryptocurrency agenda mainly required the cooperation of Congress and the White House.
Bankman-Fried also had a stake in blocking efforts to regulate cryptocurrencies at the state level, such as by banning or restricting cryptocurrencies’ energy-intensive “proof of work” mining.
Federal candidates and party committees that received donations directly from Sam Bankman-Fried have been setting aside the donations from him in anticipation of the possibility that they might either need to be returned because they were made illegally, or need to be recouped to pay off Bankman-Fried’s creditors. State- and local-level contributions from Bankman-Fried’s political advisors or employees could be subject to similar legal challenges.
“Anyone who received political donations connected to him to Mr. Bankman-Fried probably should take account of the possibility that some or all of the money they received may have to be given back at some point,” said Daniel Weiner, a campaign-finance attorney and director of the Brennan Center’s elections and government program. “Whether and how much of that will actually have to be remains to be seen.”
A run on FTX’s deposits prompted by the CEO of a rival cryptocurrency exchange exposed a messy shell game at the heart of FTX’s business in early November. Customers who used FTX as an exchange to trade cryptocurrencies lost some $8 billion dollars after FTX allegedly used customer funds to pay loans owed by Alameda Research, a hedge fund connected to FTX. FTX declared bankruptcy shortly after the revelations.
Then, in mid-December, the federal government announced a criminal indictment against Bankman-Fried that accused him of defrauding his investors and customers. It also surprised observers by charging Bankman-Fried with orchestrating a straw political donor scheme designed to circumvent campaign-finance limits, in which Bankman-Fried made donations to federal candidates in other people’s names.
McElwee, the former adviser to Bankman-Fried who donated more than $71,000 to congressional candidates, emerged shortly afterward as one of the potential conduits for Bankman-Fried’s straw donor operation. Speaking to Politico, McElwee’s attorney has dismissed that suggestion as “speculation” and declined to comment on McElwee’s conversations with the Department of Justice.
“Any money that came through the cryptocurrency industry or FTX, even in Guarding Against Pandemics, deserves scrutiny.”
– Craig Holman, Public Citizen
For a variety of reasons, a straw donor scheme in state and local elections where Sam Bankman-Fried’s political deputies were active appears less likely. Although McElwee’s donations to federal candidates track closely with Sam Bankman-Fried’s, no such parallel exists in state and local elections, where Sam Bankman-Fried was not often directly active.
And the federal indictment of Sam Bankman-Fried only accuses him of using other people’s names to make donations to candidates for federal office.
Still, the bankruptcy alone ― and the alleged fraud that may have been used to generate the money used by the political deputies ― could make the donations of Sam Bankman-Fried’s political associates vulnerable to a clawback from FTX’s new CEO, John Ray III, according to Yesha Yadav, a specialist in bankruptcy law at Vanderbilt University Law School.
“Even if it’s been through different hands … there’s been so much commingling that FTX’s new CEO can try and show that this is all basically Alameda money, and we’re just clawing it back at this point,” Yadav said.
But Ray and the bankruptcy attorneys handling FTX’s bankruptcy could also decide that pursuing those funds is not worth the costs associated with it, Yadav noted.
In addition, these contributions to state and local campaigns and parties provide a window into a previously unexamined component of Sam Bankman-Fried’s political operation.
Sadowsky, Gabriel Bankman-Fried and McElwee made contributions to candidates and party committees in nine states: California, Colorado, Connecticut, Delaware, Iowa, Maine, Maryland, New York and Rhode Island. Their donations went to several candidates and PACs that are not household names, but that wield significant power on the state and local levels.
In California, Gabriel Bankman-Fried contributed a total of $26,800 to various state legislative candidates’ campaigns and the reelection campaign of the state Attorney General Rob Bonta.
In Colorado, Sadowsky contributed $14,475, Gabriel Bankman-Fried contributed $4,425, and McElwee contributed $1,400 to a state legislative candidate and various Democratic Party bodies.
In Connecticut, McElwee gave $10,000, Sadowsky gave $7,000, and Gabriel Bankman-Fried gave $2,000 to various Democratic Party organs and political action committees.
In Delaware, McElwee gave $1,200 to a pair of state legislative candidates, and Sadowsky gave $25,000 to the state’s House Democratic Caucus.
In Iowa, Sadowsky contributed $35,000, McElwee $1,027, and Bankman-Fried $750 to statewide candidates, state legislative candidates and the Iowa Democratic Party.
In Maine, Sadowsky contributed $50,000 to the House Democratic Campaign Committee.
In Maryland, Sadowsky contributed $3,500 to two local candidates.
In New York, Bankman-Fried contributed $15,900, Sadowsky contributed $13,000, and McElwee contributed just over $1,600 to state legislative candidates.
And in Rhode Island, Sadowsky contributed $7,000 to state legislative candidates and various Democratic PACs.
HuffPost reached out to Gabriel Bankman-Fried, Sadowsky and McElwee for comment on the reasons behind their giving. Bankman-Fried and Sadowsky did not respond. McElwee declined to comment.
In the past, representatives of Guarding Against Pandemics and Protect Our Future have insisted that their organizations’ endorsements and political spending were based solely on their desire to ensure federal funding for pandemic prevention.
“If this is a weird crypto play, I certainly have not been informed about it,” Gabriel Bankman-Fried told NBC News in May. “I want to stop the next pandemic. That is really my one and only goal here.”
The Bankman-Fried brothers and Sadowsky are active in the “effective altruism” movement, whose adherents use data to maximize good for the largest possible portion of people through the most efficient possible means. Devotees of “effective altruism,” whose commitment to socially conscious philanthropy has a near-religious quality, have taken to championing esoteric causes like increasing federal funding for pandemic research and prevention. And many self-described effective altruists voluntarily donate upwards of 30% of their incomes to advancing those causes.
But Sam Bankman-Fried was concurrently trying to persuade the U.S. federal government to construct a permissive regulatory framework for cryptocurrencies and the exchanges on which they are traded. He advocated for cryptocurrencies to be regulated by the Commodities and Futures Trading Commission, a federal agency with limited resources and a spotty history of regulatory oversight. That way, Bankman-Fried might avoid the stricter transparency requirements of the Securities and Exchange Commission under the chairmanship of Gary Gensler, a deep skeptic of the cryptocurrency industry.
Bankman-Fried put serious money behind his cryptocurrency agenda, contributing $2 million to GMI PAC, a super PAC explicitly fighting strict regulation of the industry. The candidate questionnaires circulated by GMI PAC ― and another super PAC that GMI PAC funds ― ask candidates whether they support legislation shielding cryptocurrency from SEC regulation and spread unsupported claims about the environmental impact of Bitcoin mining, according to a report in The American Prospect.
To veteran corruption watchers in Washington, Bankman-Fried’s pursuit of more favorable regulatory treatment is inseparable from his professed interest in pandemic preparedness.
“I have a hard time believing that FTX contributions have any other motive other than helping the cryptocurrency industry,” said Craig Holman, a campaign-finance and ethics expert at the liberal group Public Citizen. “Any money that came through the cryptocurrency industry or FTX, even in Guarding Against Pandemics, deserves scrutiny.”
Under Gabriel Bankman-Fried’s leadership, Guarding Against Pandemics, a political nonprofit, would endorse candidates from both major parties based on those candidates’ professed commitment to securing federal funding for pandemic preparedness. Those endorsements signaled to Protect Our Future, a super PAC that backed Democrats, that a candidate was worthy of financial support. (A second FTX executive, Ryan Salame, contributed large sums to Republican super PACs.)
Guarding Against Pandemics also had an active lobbying operation. Gabriel Bankman-Fried and in-house lobbyist Varun Krovi met frequently with lawmakers and aides on Capitol Hill in an effort to include dedicated pandemic preparedness funding in the end-of-year omnibus spending bill. They partially succeeded: The bill creates an Office of Pandemic Preparedness and Response Policy inside the White House.
Sincere interest in preventing pandemics does not preclude these donors from exercising an influence on cryptocurrency policy, however ― even inadvertently.
Political candidates and party bodies who received money from Protect Our Future ― or even figures like Gabriel Bankman-Fried, Sadowsky and McElwee ― were liable to learn that those contributions were made possible by Sam Bankman-Fried’s cryptocurrency fortune. Those candidates and parties might then be less likely to try to aggressively regulate the emerging cryptocurrency industry.
“It has the potential to have a corrupting effect on people who took the money out of alignment with Guarding Against Pandemics’ putative mission,” said a progressive strategist, who is sympathetic to effective altruists’ policy goals and requested anonymity to speak freely.
The cryptocurrency industry’s main policy priorities are in the domain of the federal government, but it has interests at the state level as well.
It’s not clear that the donations of Bankman-Fried’s associates have had an impact on efforts by liberal lawmakers to regulate the industry.
New York became the first state to adopt a temporary ban on energy-intensive cryptocurrency “mining” in November. The law places a two-year moratorium on fossil-fuel plants’ ability to grant permits to cryptocurrency mining operations out of concern for the practice’s negative environmental effects.
New York Assembly members Jen Lunsford, Steven Englebright and Alan Stirpe ― the three recipients of Sadowsky and Gabriel Bankman-Fried’s largesse who were in the New York state Assembly at the time of the moratorium’s adoption ― voted for the bill. Alex Bores, who was not yet a lawmaker, pledged as a candidate to oppose the reactivation of fossil-fuel plants “for any reason, including crypto mining.”
HuffPost reached out to all of the state and local candidates and party committees who received donations of more than $50 from Sadowsky, Gabriel Bankman-Fried or McElwee.
In an email, Lunsford, who got $2,800 from Bankman-Fried and $1,200 from Sadowsky, responded that she was already planning to donate Gabriel Bankman-Fried’s contribution to charity. She had been unaware of Sadowsky’s connection to Sam Bankman-Fried’s political operation.
“Given that I have literally never spoken to Mr. Bankman-Fried or Mr. Sadowsky, I have no idea which of my policies either may appreciate or support,” she said.
Englebright received $2,800 from Bankman-Fried and $1,200 from Sadowsky. The former representative from Long Island, who lost his reelection bid, told HuffPost he was completely unaware of the donations.
“I think cryptocurrency is a scam,” he said, adding that he was a primary co-sponsor of the mining moratorium bill.
Bores received $9,400 from Sadowsky ― the maximum legal limit ― and $7,500 from Bankman-Fried.
Bores, an engineer and vegetarian, had bonded with Sadowsky, Bankman-Fried and McElwee ― the latter of whom he had already met in college debate competitions years earlier ― in 2021 over their shared interest in empirical solutions to overlooked problems like pandemic preparedness. He is reluctant to use labels, but identifies with effective altruists’ interest in “the best way to put their time and money into causes that have a large impact.”
Bores sees the blockchain technology underlying some cryptocurrencies as “exciting,” but views the digital currencies themselves as a “solution in search of a problem.”
“Given that I have literally never spoken to Mr. Bankman-Fried or Mr. Sadowsky, I have no idea which of my policies either may appreciate or support.”
– New York Assembly member Jen Lunsford (D)
Indeed, a number of candidates who responded to HuffPost said they had some connection to the effective altruism movement. Rhode Island state Sen. Victoria Gu, a software engineer who received $1,000 from Sadowsky, told HuffPost that she had met Sadowsky at an effective altruism conference. During her first, successful campaign for state Senate in 2022, she emphasized trying to be “as evidence-based as possible in policy decisions.”
Sadowsky “respects the work I’ve done previously and thought I would be a great candidate,” she said.
Colorado state Rep. Ruby Dickson, who received $400 from each of the three men, told HuffPost by email that her interest in fighting climate change, preventing pandemics and reducing poverty led her to become active in the effective altruism world while pursuing a masters degree at the University of Oxford in the United Kingdom. She got to know Sadowsky, Gabriel Bankman-Fried and McElwee as a result of her involvement in that world. (All three of them also donated to the Arapahoe County Democratic Party, which covers Dickson’s district.)
She donated the contribution from Gabriel Bankman-Fried to a fund for victims of the Club Q shooting in late November, and plans to return any donations that turn out to have been contributed illegally.
“I believe that crypto has a lot of problems and should be regulated accordingly,” Dickson added. “I’m wary of its environmental impacts, as well as the equity and risk concerns around unregulated financial transactions.”
Austin Frerick, an agricultural and antitrust policy expert at Yale University who received $20,000 from Sadowsky, was introduced to Sadowsky through an animal-rights lawyer. He told HuffPost Sadowsky was supportive of his work combating industrial-scale animal agriculture. (Many effective altruists oppose factory farming both on the grounds that it is cruel to animals and that it increases the risk of pandemics.)
“I never talked crypto with Michael,” Frerick said. “I never realized he was part of this world.”
The two Maryland candidates who received donations from Sadowsky did not know him and are not part of the effective altruism movement.
Martha McKenna, a spokesperson for Frederick County, Maryland, Executive Jessica Fitzwater, who got $2,500 from Sadowsky, told HuffPost in a statement that the campaign had been unaware of the donation from Sadowsky or his ties to Sam Bankman-Fried.
“We are working with the Board of Elections to figure out how the contribution can be returned or directed to a compensation fund for victims of the fraud,” she said.
Brad Young, the Frederick County council member who got $1,000 from Sadowsky, heard from a mutual acquaintance that Sadowsky had appreciated Young’s past work on the Frederick County Board of Education. In an email to HuffPost, Young promised to return the donation if it emerged that there is “something suspect” about it.
“I have no positions on Crypto at this point,” added Young, who is CEO of a financial planning firm. “Being in the investment business, I do not even understand it or its valuations.”
The remaining state and local lawmakers, candidates and party committees that received donations from Sadowsky, Gabriel Bankman-Fried or McElwee did not respond to HuffPost’s requests for comment.