NASSAU – Sam Bankman-Fried, the second biggest Democratic donor in the 2022 election cycle, has been charged with violating campaign finance laws, in what could be the biggest infusion of illegal corporate money into US politics in decades.
The FTX founder and two other top executives of the bankrupt crypto empire have lavished US$76.1 million (S$102.5 million) on super political action committees (PACs) and other political committees in recent years.
That spending is now the subject of one of the eight criminal counts of the United States Justice Department’s indictment, which alleges that the former billionaire conspired with unnamed individuals to use corporate money and shadow donors, starting in 2020, to contribute to political campaigns.
“This is the largest corporate conduit contribution case in US history,” said Mr Brett Kappel, a political lawyer with Harmon Curran.
He said the previous high involved the Grocery Manufacturers Association, now the Consumer Brands Association, which was fined US$18 million for making US$11 million in disguised corporate contributions in a Washington state referendum campaign. After a lengthy court battle, the association agreed to the fines in 2022.
The FTX collapse could pull in the dozens of Republican and Democratic candidates, super PACS and other fund-raising groups into a complicated legal proceeding, and could put them at reputational risk for holding money that may have come unwittingly from FTX’s customer accounts.
The ongoing bankruptcy proceeding could also force fund-raising committees to pay back the money – plus interest – just as they are trying to bring in cash for the 2024 US presidential election.
Under campaign finance laws, it is illegal to donate corporate money to campaigns, parties and PACs. While super PACs can accept direct donations from corporations, they have to disclose the source of the funds.
Bankman-Fried, Mr Ryan Salame, who is chief executive of FTX Digital Markets, and Mr Nishad Singh, FTX’s director of engineering, have emerged as major political donors. They combined to give US$70.5 million in the midterm elections, and Bankman-Fried previously donated US$5.6 million in the 2020 election cycle.
All three received large sums of money in the form of loans made by Alameda Research, Bankman-Fried’s hedge fund, according to a November bankruptcy filing. Bankman-Fried borrowed US$1 billion, Mr Singh took US$543 million and Mr Salame got US$55 million.
Bankman-Fried received numerous loans and in one case signed as both the issuer and the recipient, Mr John J. Ray III, who is now FTX chief executive, told lawmakers at a House hearing on Tuesday. “We have no information, at this time, as to what the purpose or the use of those funds were – and that is part of our investigation,” he said.
The indictment says only that the amount of money donated exceeded US$25,000, the threshold triggering fines, a prison sentence of up to five years, or both.
Manhattan US Attorney Damian Williams said on Tuesday that the alleged scheme involved “dirty money” that was “used in service of Bankman-Fried’s desire to buy bipartisan influence and impact the direction of public policy in Washington”.
Bankman-Fried is also charged with wire fraud and conspiracy.
Previous schemes to use conduit contributions, an enforcement priority for the Justice Department, have tended to involve much smaller amounts – some in part because donors used straw-man contributions to get around contribution limits to campaigns, said Mr Craig Engle of law firm ArentFox Schiff.
Bankman-Fried and his colleagues gave about US$1.8 million to committees with contribution limits, with the remainder going to super PACs.
Since the Supreme Court’s 2010 Citizens United case and related rulings, corporations can legally donate to super PACs. FTX US and Alameda Research also donated directly to super-PACs, combining to give US$8.4 million since 2020.
“There are so many ways to do things legally,” Mr Engle said. “I’m always surprised that people resort to illegal means.”
