Essential Politics: Sam Bankman-Fried and the downfall of a crypto king - Los Angeles Times
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Essential Politics: Sam Bankman-Fried and the downfall of a crypto king

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Early on Monday, Sam Bankman-Fried, the disgraced former chief executive of cryptocurrency exchange FTX (and former billionaire), made a bold prediction. “I don’t think I will be arrested,” he said during a Twitter Spaces appearance.

Hours later, Bankman-Fried was in custody.

Late Monday night, police arrested Bankman-Fried at his home in the Bahamas after charges were filed against him in the Southern District of New York. The Justice Department is seeking to extradite him to the United States to face eight separate charges, including wire fraud, conspiracy to commit wire fraud, conspiracy to commit commodities and securities fraud, conspiracy to commit money laundering and, finally, conspiracy “to defraud the United States and violate the campaign finance laws.”

It was a stunning, albeit seemingly inevitable, outcome in the rise and dramatic fall of the cryptocurrency industry’s poster child. After a number of bankruptcies and collapses of crypto exchanges in the spring, Bankman-Fried became the face of the legitimate side of an industry that has been tied to money laundering and financing of illicit activities.

He was a familiar sight on Capitol Hill and lobbied Congress on crypto regulations, pushing for the Commodities and Futures Trading Commission — a smaller and less aggressive regulator than the SEC — to oversee crypto markets.

He also became notorious for his political spending, much of which was directed at Democratic primaries. In one instance he spent over $10 million on an obscure race in Oregon, only for his candidate to lose in a landslide.

He often said his political spending was tied to promoting pandemic prevention and had nothing to do with his lobbying efforts, but back in August I wrote about how his donations were often made to the same people charged with regulating the crypto industry; and, at times, made just weeks before he was slated to testify in front of them.

Bankman-Fried’s arrest happened the day before he was slated to testify in front of the House Committee on Financial Services, which is chaired by Rep. Maxine Waters (D-Los Angeles).

So how did we get here and what is next for Bankman-Fried, the former crypto king?

Hello, readers, I’m Freddy Brewster. I’m a Washington bureau intern with the Los Angeles Times. This week, we are talking about cryptocurrencies, international criminal conspiracies and the downfall of one of the millennial generation’s greatest alleged grifters.

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How did we get here?

Exactly how FTX fell so far, so fast is what Rep. Waters and the House Committee on Financial Services are trying to figure out in the series of hearings that began Tuesday. (If you are missing the political drama from the Jan. 6 Committee hearings, I’m sure these hearings will get you your fix.)

Along with Bankman-Fried, the Financial Services Committee subpoenaed John J. Ray III, the current CEO of FTX, who was brought in to oversee the bankruptcy proceedings for FTX and its affiliated companies. Ray has decades of experience restructuring bankrupt companies and oversaw the Enron bankruptcy proceedings.

But, in Ray’s experience, FTX is special.

“Never in my career have I seen such an utter failure of corporate controls at every level of an organization, from the lack of financial statements to a complete failure of any internal controls or governance whatsoever,” Ray said in written testimony.

The collapse stemmed from the complete control of company operations by “a very small group of grossly inexperienced and unsophisticated individuals who failed to implement virtually any of the systems or controls that are necessary for a company that is entrusted with other people’s money or assets,” Ray said.

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Waters said the FTX hearings will look at four key areas: harm to customers; FTX’s ties to Alameda Research, a crypto trading firm co-founded by Bankman-Fried; Ray’s findings as he oversees the bankruptcy; and finally Bankman-Fried’s “unlawful transfers to himself, as well as his friends and family.”

A number of California lawmakers sit on the Financial Services committee, so Golden State constituents can see exactly how their politicians are advocating for consumer protection.

“I’m the only member of the house to get an ‘F’ from the only crypto organization that rates members of Congress,” Rep. Brad Sherman (D-Northridge) said during Tuesday’s hearing. “My view is that we’ll view Sam Bankman-Fried as just one big snake in a crypto Garden of Eden. The fact is crypto is a garden of snakes.”

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The U.S. has an extradition treaty with the Bahamas, but it could be weeks before Bankman-Fried is brought back to face trial.

In a court appearance Tuesday, Bankman-Fried did not waive his rights to an extradition hearing.

“Mr. Bankman-Fried is reviewing the charges with his legal team and considering all of his legal options,” his lawyer said in a statement.

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