Prosecutors say Sam Bankman-Fried’s fraud ran through Washington

Sam Bankman-Fried orchestrated a massive campaign-finance fraud in an attempt to buy favorable treatment in Washington for his once-burgeoning crypto empire, prosecutors will argue in a Manhattan court this week.

Under this scheme, Bankman-Fried allegedly made more than $100 million in stolen funds from FTX clients, then illegally paid millions more through two of his top lieutenants. Explaining how the scam worked will be central to the government’s impeachment case against him, according to public court documents.

Lawyers will try Bankman-Fried intended to use his political career as a flywheel for his multibillion-dollar fraud, siphoning client money to increase Washington influence. As he aims to restore his political capital, lawyers will argue for friendlier treatment from policymakers that will allow his empire to grow — and allow him to collect client money.

But Bankmann-Fried’s crypto empire imploded. Now the 31-year-old faces criminal and civil charges for allegedly stealing billions of dollars from clients and investors. He pleaded not guilty to seven charges, including wire fraud and conspiracy to commit securities fraud.

As the trial unfolds, Sam Bankman-Fried’s own words may put him at great risk

In addition to the criminal case, attorneys representing more than 1 million former FTX customers and creditors are still sifting through the wreckage in a separate bankruptcy proceeding. The inner circle rang. They are trying to withdraw more than 300 political contributions.

A spokeswoman for the U.S. attorney for the Southern District of New York, which is bringing the criminal case against Bankman-Fried, declined to comment.

Bankman-Fried’s political giving eclipsed him in the top ranks of Democratic Party megadonors in a few years. Only financier George Soros gave more to Democratic causes in the 2022 election cycle, federal records show.

But that giving, advocates argue, is a tool of a shameful fraud. Bankman-Fried’s violation of campaign finance laws on such a large scale “demonstrates the strength of his will to buy political influence — he stole client funds to satisfy them. He plans to appear at trial.”

“This is the largest scheme of its kind we’ve ever seen charged in a criminal case,” said Stuart McPhail, an attorney for Citizens for Accountability and Ethics in Washington (CREW). . said One interviewer noted that it was “not generally known” that he donated equally to both parties, as his contributions to the Republican Party were all “dark”.

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“This is an admission of criminal violation of campaign law,” McPhail said, pointing to a federal ban on political donors avoiding disclosure rules by convincing others to contribute and then repaying them.

However, Bankman-Fried did not face separate charges for her campaign finance activity. Prosecutors added one to the former executive’s eight-count indictment, but dropped it after the Bahamas government said it was not part of an extradition deal it negotiated last year to extradite Bankman-Fried to the United States.

Instead, prosecutors have said they will prove their broader case of Bankman-Fried’s alleged criminal intent, zeroing in on her political activities. “Defendant wanted access to capital that could be used for political donations that would burnish his own image and improve the regulatory prospects of his business in the United States,” they said in an August filing.

Legal experts say a central task for prosecutors is to convince jurors that Banker-Fried committed fraud by misallocating client funds. But they can also establish a damaging profile of the defendant by proving that he ran a vast, illegal influence-peddling scheme with that money.

“They think it’s easy for jurors to understand, it’s easy to see why it’s wrong to take money from someone else to make a campaign donation,” said Harry Sandick, a former assistant U.S. attorney for the Southern District of New York. “They’ll want the jury to hear that he’s a crook. If they can convince the jury that he’s a bad guy, they’ll increase their chances of conviction.

Prosecutors could use information they’ve gathered about Bankman-Fried’s political activity to try to prove she understood her behavior was wrong.

“The government will try to show not only that he was trying to defend something he knew was illegal, but also that he made statements that would clarify the game he was playing,” said Daniel Richman, a former attorney at Columbia Law School in the Southern District of New York.

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Two of Bankman-Fried’s top lieutenants — FTX’s former director of engineering, Nishad Singh, and Ryan Salem, the former co-CEO of FTX’s Bahamian subsidiary — have already pleaded guilty to violating campaign finance laws through donations Bankman-Fried paid back. fee.

Singh — who is set to testify as a witness in the impeachment inquiry — paid more than $14 million to Democratic candidates and causes, according to a tally by the Center for Responsive Politics. He admitted that he did not select beneficiaries and that FTX was partially reimbursed in customer money.

“I understand that the donations were in part for Sam Bankman-Fried and FTX’s benefit and ability to influence politically,” he said in court in February. While he was unaware of campaign finance laws, he knew his behavior was wrong, he added.

Singh’s attorney did not respond to a request for comment.

For his part, Salem did not cooperate with the government, which gave more than $23 million to Republicans and right-wing groups. But in court filings prosecutors cited private messages he sent.

In one, “to a trusted family member,” he wishes Bankman-Fried “[ed] Democracy should contribute to both [sic] and Republican candidates in the US.” But the crypto executive won’t give directly to Republicans. “The worlds obviously lose their minds when you donate. [sic] No Republican will talk to you to a Democrat, and no Democrat will talk to you if you donate to the Republican Party.

In another, to a “trustee,” lawyers said Salameh’s contributions were intended to “eliminate anti-crypto tems for pro-crypto tems and anti-crypto repubs for pro-crypto repubs” and that his donations would “remove the That Republican Party.”

Salam’s attorney did not respond to a request for comment.

Those who received large amounts said they were still working to get the funds back. For example, Emily’s List — which advocates electing more Democratic women who support abortion rights — received $3.1 million from Bankman-Fried and Singh. Sarah Spain, the group’s national press secretary, called the allegations against FTX’s former leadership “disturbing” and said the group is “engaging and cooperating with a number of officials who want to return these contributions.”

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In more common cases, recipients of tainted political money often donate an equal amount to charity. Many FTX users did just that in the weeks after the company’s collapse. But FTX’s new leadership wrote to those who received the contributions in February and demanded that the funds be returned to help repay customers and creditors.

Bankman-Fried’s mother, Barbara Fried, now finds herself caught up in the matter. In a separate case, she and her husband, Joseph Bankman, were sued last month by John J. Ray was sued by the corporate wind-down specialist managing FTX through its bankruptcy.

Ray was tasked with returning millions of dollars in FTX funds that married Stanford law professors allegedly misused to enrich themselves. He argued that Fried, who co-founded a Democratic super PAC, coached his son on how to break campaign finance laws.

In an August 2022 email to Bankman-Fried, Fried pointed to a contributor who “only gives in an unpublished form, and I strongly urge you to do the same or change someone else’s name.” case. A week later, he emailed his son again, saying, “Strongly advise against submitting a form disclosed in your own name.” Bankman-Fried replied, “I agreed that there was no point in revealing.”

Attorneys for Bankman and Fried said in a statement that the claims in the lawsuit are “absolutely false.” FTX’s new leadership and a group representing the bankrupt company’s creditors did not respond to requests for comment.

As Bankman-Fried’s criminal trial begins this week, federal prosecutors are not seeking to hold the former executive directly responsible for her campaign-finance activities. But his alleged behavior “flips to the heart of what the law is supposed to stop,” said UCLA law professor Richard Hassan, an expert on campaign finance law. “There are some red lines, and if proven, this will easily cross them.”

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