Cryptocurrency outcast Sam Bankman-Fried’s expected testimony before the House Financial Services Committee on Tuesday is shaping up to be an extremely awkward moment for Democrats on the committee whose campaigns he funded.
Chairwoman Maxine Waters, Democrat of California, has said she wants to investigate the collapse of FTX, the now defunct multibillion-dollar crypto exchange founded by Mr Bankman-Fried that critics have likened to a Ponzi scheme. But she said she didn’t want to “get into” her political donations, $300,351 of which went to nine committee members, including seven Democrats.
Ms Waters herself has been cozy with the disgraced entrepreneur, posing for a photo with him in April which was apparently taken at a conference in the Bahamas hosted by FTX. The lawmaker’s husband is a former US ambassador to the Bahamas, and the couple are said to have been staying at the home of Allyson Maynard-Gibson, a Bahamian politician who worked as an attorney for FTX and whose daughter was an executive at the company.
At a committee hearing last year, Ms Waters fueled considerable debate on social media over whether the kiss she blew was directed at Mr Bankman-Fried or at Ms Maynard-Gibson, who was seated behind him in the courtroom.
Since FTX declared bankruptcy and wiped out billions of investor money, Ms. Waters has taken a polite but persistent stance toward Mr. Bankman-Fried. She urged him in a bizarre Twitter exchange last week to testify and tried to refute “lies” that she was unwilling to subpoena him.
“The collapse of FTX hurt over a million people,” Ms Waters told her. “Your testimony would not only be meaningful to members of Congress, but also essential to the American people.”
Mr Bankman-Fried’s donations to members of the Financial Services Committee have raised concerns that lawmakers are not trying to hold him accountable. Rep. Chuy Garcia, an Illinois Democrat, is the only member of the committee to say he would return a contribution — $2,900 — from the fallen crypto king.
But Mr. Bankman-Fried’s political action committee, Protect Our Future PAC, spent an additional $199,851 on ads supporting Mr. Garcia, who sits on the committee’s digital assets task force.
Federal Election Commission records show four other Democrats on the digital assets task force received donations from Bankman-Fried and his associates: Reps. Ritchie Torres of New York ($40,300), Josh Gottheimer of New Jersey ($16,600), Sean Casten of Illinois ($9,100) and Jim Himes of Connecticut ($500).
Mr. Bankman-Fried also donated $11,600 to committee member Rep. Jake Auchincloss, Democrat of Massachusetts.
In the last election cycle, Mr. Bankman-Fried spent about $37 million, almost all of which went to support Democratic candidates and causes. He was the second largest contributor to the Democratic Party.
Some observers believe the hearing will be more about giving lawmakers, who are accused of enabling Mr Bankman-Fried’s alleged fraud, a chance to reprimand him and position themselves in front of TV cameras.
“This should be interesting,” tweeted L. Tom Block, Washington political strategist for global financial advisory firm Fundstrat and former congressman. “Since my days on the Hill staff, the purpose of the hearing hasn’t been so much to get the truth as to make sure your boss gets his question on the news.”
Head of crypto exchange Coinbase Brian Armstrong slammed Ms Waters for saying she would “welcome” Mr Bankman-Fried’s testimony.
“I mean, this guy just did a $10 billion fraud, and why is he being treated with kid gloves?” Mr. Armstrong told the Stratchery Technical Bulletin. “Compare his tweets about Mark Zuckerberg for example, who never stole $10 billion from people, whatever you think of that guy. … This tweet back and forth with Maxine Waters very politely asking him to attend a hearing, and adjourning him politely, it was weird.
He also criticized the mainstream media for being too soft on Mr Bankman-Fried. The New York Times, Bloomberg and others were called out for their favorable coverage.
“It was kind of weird watching this all unfold, mainly because I feel like the mainstream media gave a lot of softball interviews,” Mr. Armstrong said.
In addition, Mr. Bankman-Fried’s company secretly funded a media company called The Block, which claims to independently cover crypto news, Axios reported Friday. The report says the money was used in part to fund the purchase of an apartment in the Bahamas for Block CEO Michael McCaffrey, who has resigned as CEO and is leaving the company.
Mr Bankman-Fried warned Ms Waters not to expect much from his testimony if he did show up.
“I still don’t have access to a lot of my data – work or personal,” he told Ms Waters. “So there is a limit to what I can say, and I won’t be as helpful as I would like. But since the committee still thinks it would be helpful, I’m prepared to testify.
The Justice Department and the Securities Exchange Commission are reportedly investigating Mr. Bankman-Fried for alleged misappropriation of client funds. He has not been charged, but is widely believed to have mixed investor funds between three of his companies before the collapse.
In recent interviews, Mr Bankman-Fried said he was largely unaware of how the money was lost.
His testimony will likely be dampened by the prospect of criminal charges. Mr. Bankman-Fried has retained the services of white-collar defense attorney Mark S. Cohen, who recently defended Ghislaine Maxwell in her sex trafficking trial.
He told Ms Waters that he “will try to be helpful during the hearing and shed light on: the creditworthiness of FTX US and US customers, avenues that could bring value to users at the international scale, which I think led to the crash [and] My own flaws.
John Jay Ray III, the new CEO of FTX, is also scheduled to testify at the hearing.