Hungarian Conservative

The Political Connotations of the FTX Fraud Case

While left-liberal political and media organisations in Hungary are facing tough questions about receiving large campaign donations from the US from entities posing as NGOs, the second largest donor to the Democratic Party in the US is facing multiple counts of wire fraud charges.

On Friday, 11 November 2022 FTX, the second largest crypto exchange at the time, froze all withdrawals on their platforms. The same day, they filed for bankruptcy. Just three days earlier, voters in the United States took to the polls to cast their ballots for their House Representatives and Senators in the 2022 Midterm Elections. The two events are very much related. That is because Sam Bankman-Fried, the majority owner of FTX Trading Ltd, was the second largest donor to the Democratic Party this past election cycle, second only to George Soros.

According to Center for Responsive Politics, a non-partisan non-profit organization, Bankman-Fried donated at least $40 million of his personal wealth to political actors leading up to the 2022 Midterms, almost all of it to Democratic candidates directly or to political action committees supporting liberal causes. This is not just another case of a prominent figure in a major industry showing liberal bias. Sam Bankman-Fried, along with two of his associates, Caroline Ellison and Gary Wang, is facing multiple counts of wire fraud charges in the US. The Securities and Exchange Commission, the U.S. Attorney’s Office for the Southern District of New York, and the Commodity Futures Trading Commission are all conducting their separate investigations into the matter, all alleging criminal or civil wrongdoing.

While there had been questions brewing about FTX’s possible insolvency in the online crypto space for months leading up to its collapse, the magnitude of the situation only became evident in mid-November. On 12 December, Bankman-Fried was apprehended by the Royal Bahamas Police Force in Nassau, Bahamas, and has since been extradited to face justice in the US. That is an unusually fast action by a Democrat-led Department of Justice in a complicated case of fraud in the new crypto space, spanning the jurisdictions of two sovereign countries, and even involving a grand jury. That is ironic given the fact that it was the Democratic Party that had a lot to benefit from this ongoing fraud.

The core of the alleged fraudulent operation was that FTX, through their deceptive marketing and terms of service, got people to deposit fiat currency to their platforms, under the pretence that they in essence work as a checking account with crypto currencies.

The TOS specifically stated that the company had no right to their customers’ ‘digital assets’.

They could not trade them, nor could they lend them out. In reality, FTX’s management had virtually complete access to all money on any of their customers’ accounts, and they habitually funnelled huge sums of their customer deposits to Alameda Research at whim. Alameda Research is a trading firm also owned by Bankman-Fried, and headed by Bankman-Fried’s love interest Caroline Ellison as CEO. Alameda racked up billions of dollars in losses through various investments in the crypto space, which was largely funded by FTX customers, unbeknownst to them. Initially, an estimated $1 billion to $2 billion was reported to be missing in deposits. Later, that number grew to $8 billion by some accounts.

The DOJ is also charging Bankman-Fried for defrauding investors of his Alameda trading firm. According to the accusations, he inflated the company’s assets by minting excessive amounts of FTX’s own crypto token, the FTT coin. While on paper, the digital coins Alameda owned were worth many billions, in reality, there was no possible way SBF and his company could have liquidated them into that dollar value, as selling those tokens in that great volume would have decreased their value significantly. Bankman-Fried was certainly aware of that, yet he used Alameda’s FTT holdings as collateral for large loans.

With Sam Bankman-Fried’s close ties to the Democratic Party, it is no surprise that he still managed to get some positive coverage in the mainstream media, even as his customers were panicking about having their money locked up with a company that had already filed for bankruptcy. The New York Times ran a sympathetic profile piece on him on 14 November. Bloomberg published an article arguing against the likelihood of intentional fraud on SBF’s part on 17 November. Later, efforts were made to muddy the waters when it comes to the connections between Bankman-Fried and the Democratic Party. It has been pointed out in friendly-to-the-Dems media that FTX co-founder Ryan Salame donated around $23 million to Republican candidates this past election cycle. That is true, however, unlike in the case of SBF, it is unclear how involved Salame was in the ongoing potential fraud. Also, some reports claim that in fact he was the one to tip off regulators in the Bahamas about FTX’s wrongdoings. Apart from all that, Bankman-Fried’s $40 million contribution to Democrats alone certainly outweighs Salame’s donations to the opposition by almost 2:1.

If you need further evidence of political bias at FTX, please note that their 2020 balance sheet included the mysterious line ‘TRUMPLOSE’.

Bankman-Fried himself has also tried to distance himself from the leftist political party in the US. In an interview with citizen journalist and crypto influencer Tiffany Fong on 29 November, he had this to say:

‘I donated about the same amount to both parties this year. That is not generally known, because, despite Citizens United being literally the highest profile Supreme Court case of the decade, and the thing everyone talks about when they talk about campaign finance, for some reason, in practice, no-one can possibly fathom that someone in practice actually gave dark. So, all my Republican donations were dark. (…) And the reason was not for regulatory reasons, it’s just reporters freak the f—k out if you donate to a Republican. They’re all secretly liberal, and I didn’t want to have that fight.’

That is quite a remarkable statement. This is the second largest donor to the Democratic Party stating as a matter of fact that the American news media as a whole is biased. It is also telling that it elicited virtually no response from media outlets. While industry-wide bias is discussed in conservative outlets in the US, it is often dismissed as a right-wing conspiracy theory by the mainstream media.

As to the validity of his Bankman-Fried’s claims that SBF has donated an equal amount to Republicans, it is dubious at best, given his track record of confidently claiming blatant falsehoods. Whether we take what he says at face value or not, it does not paint a flattering picture of the Democrats. Either a prominent leader in a former multi-billion company made decisions based on his knowledge about ideological corruption in the news media; or, if we dismiss his claims, the Democrats were one of the biggest beneficiaries of an alleged multibillion-dollar fraud scheme.

To be fair, this would not be the first time, that the Democrats or the GOP get exposed as having very close ties to financial criminals.

The energy commodities and service company Enron, once one of the biggest US companies with a $70 billion market cap, collapsed in a similar fashion to FTX in 2001. The basis of their scheme was manipulating financial data to artificially increase their stock price. 21 people got convicted in the fallout of that case. Enron happened to be the largest career donor to former President George W. Bush. During his 2000 presidential campaign, he even used the company’s private jets to travel. Elizabeth Holmes recently got sentenced to 11 years in prison for duping investors into investing in her former health tech company Theranos, which was peddling non-functioning blood testing devices as cutting-edge innovation. She regularly held high-profile fundraisers for Hillary Clinton during her presidential run in 2016.

While left-liberal political and media organisations in Hungary are facing tough questions about receiving large campaign donations from the US from entities posing as NGOs, the second largest donor to the Democratic Party in the US is facing multiple counts of wire fraud charges.