The Blockchain 8 Should Be A Chain Gang
Short version: Emmer (R-MN) took bribes from Sam Bankman-Fried and wrote a letter— this letter— on his behalf to SEC Chair Gary Gensler demanding the SEC stop “harassing” FTX. Now Emmer is trying to pretend it was Gensler’s (and Biden’s) fault for not vigorously regulating FTX and other crypto frauds (who he himself was protecting and profiting from). Emmer may be the worst, but he’s got plenty of congressional company— on both sides of the aisle.
Let’s start with the Blockchain 8, Emmer and his 7 amigos from the House Financial Services Committee who misunderstood who they were supposed to be protecting (the public, not their crooked crypto paymasters). There are 4 Republicans and 4 Democrats, each of whom should be removed from House Financial Services immediately:
Tom Emmer, (R-MN), the ringleader
Warren Davidson (R-OH)
Byron Donalds (R-FL)
Ted Budd (R-NC)
Darren Soto (D-FL)
Jake Auchincloss (D-MA)
Josh Gottheimer (D-NJ)
Ritchie Torres (D-NY)
They all took some of FTX's looted wealth. Should any of them still be on the Financial Services Committee? You can read the whole letter to Gensler at the link above but my favorite paragraphs are this:
The SEC’s regulatory functions, while broad, are limited to the extent of its statutorily mandated jurisdiction. Enforcement powers, while conceptually broader with respect to non-SEC regulated entities, are still circumscribed by statute, federal judicial review, congressional oversight and the Commission’s own policies and procedures for initiating and conducting inquiries and investigations. It appears there has been a recent trend towards employing the Enforcement Division’s investigative functions to gather information from unregulated cryptocurrency and blockchain industry participants in a manner inconsistent with the Commission’s standards for initiating investigations.
We have reason to believe these requests might be at odds with the Paperwork Reduction Act (PRA). The Securities and Exchange Commission Division of Enforcement: Enforcement Manual from 2017 states that during an inquiry or investigation, SEC staff may utilize Form 1662 to request voluntary production of documents, the voluntary creation of documents, and voluntary interviews and testimonies from regulated entities. The Commission’s Division of Examination may utilize Form 2866 for voluntary document production as well. We understand that the fruits of these requests will help the staff assess the merits of an investigation at its earliest stage; however, pursuant to the PRA, in seeking information from the American public, federal agencies must be good stewards of the public’s time, and not overwhelm them with unnecessary or duplicative requests for information.
To help us understand how and why the SEC is soliciting information from private firms related to cryptocurrency and blockchain, we ask you please respond to the following questions as soon as possible, but no later than April 29, 2022.
They then list 13 aggressive questions with a whiff of threat about them. Yesterday The Atlantic ran a piece by James Surowiecki, Here Come The Crypto Hypocrites, going beyond Emmer and the Blockchain 8, although he is very clear that “when Emmer attacked Gensler last month, he was assailing him for failing to do precisely what Emmer had previously lobbied him not to do. Emmer is not alone in this hypocrisy. “In the aftermath of FTX’s collapse, the people who have been the loudest advocates for Washington to take a hands-off approach to crypto have suddenly become the loudest voices insisting that Democrats and the mainstream media were too soft on Bankman-Fried.”
Senator Ted Cruz, for instance, who last year insisted that Congress “shouldn’t regulate something we don’t yet understand,” accused the Biden administration of being “complicit” in “fraud.” Warren Davidson, one of the other congressmen who signed that March letter to the SEC, tweeted that the FTX debacle made it “hard to believe that @SECgov hasn’t engaged in selective enforcement” by giving FTX a pass while pursuing other crypto companies. And crypto bros who had long celebrated blockchain-based currencies as a way to free people from the heavy hand of government took to Twitter to complain that the government had not prevented Bankman-Fried’s chicanery.
These were true through-the-looking-glass takes. To be sure, plenty of Democrats in Congress, including most notably Senator Kirsten Gillibrand, have adopted a boosterish— or credulous— attitude toward crypto. And some of the media’s coverage of FTX’s disintegration has arguably been soft on Bankman-Fried, who, it appears, used FTX customer funds as a backstop for big, highly leveraged bets by his hedge fund, Alameda Research. But if you look at who in Congress has been most skeptical of the crypto industry, and most insistent that it needed regulation, they’ve all been Democrats, including in particular Senators Elizabeth Warren and Bernie Sanders. Conservatives, by contrast, have generally been more sympathetic to the crypto industry’s desire to remain relatively free of government interference, in large part because that appeals to their faith in the unfettered free market and their distrust of the state.
As for the regulators who are being assailed for falling down on the job, they have consistently pointed to crypto as an industry that was dangerous for retail investors. Gensler called crypto “the wild, wild West,” and Michael J. Hsu, the head of the Office of the Comptroller of the Currency (which regulates banks), lambasted the industry’s “hype-based, ‘shoot, ready, aim’ approach to innovation and value creation.” And how U.S. regulators were supposed to uncover any alleged fraud at FTX, which as an offshore exchange was largely outside their jurisdiction, is unclear— given that the many big investors who put billions into the company themselves could not.
What lies behind this effort to blame the FTX debacle on the people who have been the most critical of crypto and the most likely to view the whole business as one big Ponzi scheme?
…Crypto advocates are trying to create the impression that Bankman-Fried got away with his scheme as long as he did thanks to regulatory failures, because they’re worried that FTX’s demise will end up tarring the entire industry as a scam. What happened at FTX, after all, shows that self-regulation is not going to protect investors or traders. More than that, the company’s collapse is damning for crypto as a whole because it demonstrates how fragile these supposed multibillion-dollar businesses can be. FTX fell apart not because of whatever possible fraud Bankman-Fried may have committed, but because a sell-off in the value of its own fake currency sparked a huge run on the bank, which FTX did not have the funds to meet. As a result, any crypto traders on an unregulated exchange have to be wondering now whether their money is safe.
Reframing what happened at FTX as a case of fraudulent behavior that regulators should have caught is intended to accomplish two goals: bashing Democrats and the government, while reassuring crypto traders that the industry has no systemic problems. Such a blatant attempt to rewrite history is unlikely to convince anyone who isn’t already motivated to believe it.
After all, it wasn’t Gary Gensler who, a year ago, praised Bankman-Fried, saying, “Sounds like you’re doing a lot to make sure there is no fraud or other manipulation.” It was Tom Emmer.
Tom, Emmer is that galoot up top in the graphic with Bankman-Fried, who paid for his new position as GOP majority whip. If there was any Justice, they would wind up as roommates in a federal penitentiary. Back in March...
In his crypto-post this morning, David Graham starts with a boneheaded premise: “Bankman-Fried,” he wrote, “became prominent in political circles for his donations to liberal causes, including nearly $37 million to Democrats and progressive groups in the 2022 cycle.” In his own words, Bankman-Fried explained that he— like his parents— is a conservative Democrat, not a “liberal” and certainly not a “progressive.” Although brother Gabe directed a couple of dollars here and there to corrupt progressive candidates, almost all of the SBF money went to corrupt conservatives, primarily corrupt conservative Democrats but also to corrupt conservative Republicans. He mostly didn’t give to fascists in the GOP or to progressives among Democrats.
SBF’s kind of Democrat is New Jersey Blue Dog Josh Gottheimer, far to the right of the Democratic mainstream and dripping with the kind of corruption Bankman-Fried was looking for when he was trying to figure out which DC politicians were for sale. Gottheimer was one of the notorious Blockchain-8, who were willing to let SBF write the crypto regulatory rules, a very Republican (conservative) perspective… but one that paid well. And the millions of dollars in independent expenditures that SBF’s superPAC (a make-believe "pandemic fund" called Protect Our Future) made were all during primary season (100%) and all to upend a more progressive candidate in favor of a more conservative one— spending, for example, $1,010,178, in conjunction with millions more spent by Hakeem Jeffries’ little AIPAC alliance, to help Shontel Brown defeat progressive icon Nina Turner. Some of the other top SBF targets were:
OR-06- $11,388,377 to defeat progressive Andrea Salinas in favor of some mystery-meat candidate SBF came up with (SBF failed)
NC-04- $1,040,133 to support conservative Democrat Valerie Foushee against progressive Nida Allam (SBF succeeded)
CA-42- $1,002,730 to support “ex”-Republican turned conservative Democrat Robert Garcia against progressive Christina Garcia (SBF succeeded)
KY-03- $971,552 to help establishment Democrat Morgan McGarvey defeat progressive Attica Scott (SBF succeeded)
NY-03- $710,849 on behalf of far right Democrat Josh Lafazan (SBF failed)
NY-22- $510,184 to support conservative Democrat Francis Conole against progressive Sarah Klee Hood (SBF succeeded though Conole lost the general)
CA-37- $500,970 to stop progressive Daniel Lee in favor of establishment Democrat Sydney Kamlager (SBF succeeded)
FL-23- $262,426 to help elect one of the most corrupt conservatives running in a deep blue district, Jared Moskowitz (SBF succeeded)
NJ-08- $250,000 to help Rob Menendez’s conservative son win the primary while ingratiating himself to the notoriously corrupt father /Senator (SBF succeeded)
And when it came to the big conservative target in North Carolina, SBF contributed hundreds of thousands of dollars to Democratic Majority for Israel and Mainstream Democrats PAC to help them spend $538,627 to support far right fake-Democrat Don Davis against progressive Erica Smith in NC-01.
Other than that, Graham’s piece made the point that SBF was giving to Republicans as well as Democrats, not news for DWT readers, who have been aware of that— and Ryan Salame— for several months. “Bankman-Fried,” he wrote, “has said in interviews that he personally actually gave nearly as much to GOP candidates and causes as to Democratic ones, using dark-money vehicles. That claim is impossible to independently verify (dark money being, well, dark money), and Bankman-Fried’s word can’t really be trusted, but it all points to a different picture from the one of a great Democratic donor laid low. It’s possible that Bankman-Friend was in fact— and pun intended— a crypto-Republican… Overall, according to Open Secrets, FTX donations to candidates were very slightly GOP-leaning, although contributions to individual politicians were only a small slice of the $70 million."
Now, on his weird post-collapse apology tour, Bankman-Fried claims that was not the whole picture. In an interview with Tiffany Fong this week, he said he gave roughly the same amount to Republicans and was the party’s second- or third-largest donor as well, mostly in the primary. But those donations were hidden, he claimed: “Despite Citizens United being literally the highest-profile Supreme Court case of the decade and the thing everyone talks about with campaign finance, for some reason, in practice, no one can possibly fathom the idea that someone actually gave dark. All my Republican donations were dark.”
The reason was cynical, if realistic: “Reporters freak the fuck out if you donate to a Republican,” he told Fong. “They’re all secretly liberal, and I didn’t want to have that fight, so I made all the Republican ones dark.” One wonders who at this late stage is not privy to the liberal lean of much of the press, but the more operative characteristic of reporters in this case is gullibility: Just as the financial press was credulous about FTX’s prowess, the political press was too quick to believe that Bankman-Fried’s giving was all in the open.
Bankman-Fried’s Republican giving is impossible to verify, since the whole point of such donations is that they can’t be traced. And Bankman-Fried isn’t a reliable source, but it seems like an odd thing to lie about now, as he spills other embarrassing truths. And it fits well with some other curious statements he’s made in interviews since the collapse. During a chat interview, Vox’s Kelsey Piper asked Bankman-Fried whether his very public commitment to ethical behavior was “mostly a front.” “Yeah,” he replied. “I mean that’s not *all* of it. But it’s a lot.” He described his po-faced comments in the past as being part of “this dumb game we woke westerners play where we say all the right shiboleths [sic] and so everyone likes us.”
That points to the hard truth about his donations too: Although Bankman-Fried claimed to be acting out of lofty motives such as stopping Trump, he appears to have been more invested in trying to shape favorable regulation. Like many tech giants, FTX concluded that more regulation in its industry was, whether desirable or not, inevitable, so the wisest course was to be proactive in shaping regulations that would be favorable.
In September, when Chuck Todd asked Bankman-Fried if he wasn’t simply out there trying to influence politicians, he demurred: “I’m not going to tell people that they should give anyone a free pass on it. What I would say is look at the evidence; try and trace out what’s happening.”
The answer is hilarious in retrospect: Like the smooth operator he was, Bankman-Fried starts out with an apparent admission against interest, gamely admitting that he deserves skepticism. Then he effortlessly pivots to telling people to follow the money, knowing full well (assuming his more recent claims are true) that there is no way for them to accurately do so. “People aren’t taking me at my word, and I understand that,” he said— though he understood better than they did why they shouldn’t.
Bankman-Fried stuck out, before November, as a prominent liberal billionaire, which is a lonely position. Quartz analyzed donations by billionaires in the 2022 cycle and found that only six of the top 20, including Soros and Bankman-Fried, leaned left (although Soros’s $128 million tab was nearly double the next closest: that of the Republican donors Richard and Elizabeth Uihlein).
Bankman-Fried’s belated claims of roughly equal giving echo the realism that Trump displayed during the 2016 Republican primary. When confronted by his rivals with his past donations to Democrats, he didn’t flinch. “I gave to many people before this,” he said. “When they call, I give. And you know what, when I need something from them two years later, three years later, I call them. They are there for me.”
This is hardly news to most Americans, but it’s still a little bracing to hear players like these men say it out loud. Bankman-Fried is right to point out, both explicitly and by implication, that donors are taken too much at their word, and that dark giving is often forgotten and poorly understood. As for the big gaps in Democratic and Republican coffers that FTX’s collapse leaves, they’re probably fleeting. Some wealthy person will have an interest in getting politicians to do something, which means they’ll be more than happy to fill in the holes— whether with noisy donations or quiet ones.