Billionaire Crypto Bro Who Gave Democrats $40 Million Files For Bankruptcy, Resigns as FTX CEO

The former media darling had better hope his lavish spending on politics earned him enough friends in the nation's capital to call in a few favors, the kind of favors that might help him avoid the fate of other rise-and-fall financial whizzes, like Bernie Madoff.

0
2823

Sam Bankman-Fried, known in the cryptocurrency community simply as SBF, became a poster child for the industry after he cozied up to Washington, D.C. regulators and spent a whopping $39.8 million on Democratic political campaigns.

The doughy geek even said on a podcast earlier this year his “soft ceiling” for spending cash to help Democrats get elected was $1 billion.

Now, instead of help liberals fight for office, he’s fighting to stay solvent — and perhaps out of a jail cell.

SBF’s crypto firm filed for bankruptcy Friday after he resigned as CEO following a whirlwind week that saw his $15 billion net worth collapse by 94 percent. He might not even be a billionaire anymore once the dust settles.

Top financial regulators are now probing his crypto empire to see whether he violated any laws with his creative handling of other people’s money.

SBF’s company, FTX, operated an off-shore cryptocurrency exchange where customers could purchase and store all kinds of cryptocurrencies. Until this week, FTX was one of the biggest centralized exchange and derivatives trading platforms in the entire cryptocurrency space.

A downswing in the market created a liquidity crisis for FTX that quickly revealed the company was practically bankrupt. The cause of that downswing gets kind of complicated: briefly, a one-time financial supporter and current exchange competitor decided to dump a ton of a cryptocurrency FTX invented and kept on its books at an insanely high valuation. Huge selling dropped the price, and thereby the value of FTX, and customers started to worry about their deposits with FTX. If you haven’t followed the history of cryptocurrency, there’s a long tradition of large companies suddenly turning up bankrupt, costing users who trusted them their life savings.

When worry over FTX’s solvency began to circulate online, a mad rush for users to withdraw funds from the platform began, leading to more than $5 billion in withdrawal requests — a crypto version of a bank run. FTX was forced to slow and eventually freeze withdrawals because it didn’t have the funds to cover customer deposits. Things only got worse for SBF and FTX when the full breadth of his double-dealing and misuse of client funds was exposed.

So where’d the money go? According to a report in the Wall St. Journal, SBF used $10 billion in customer funds to prop up a trading firm that he also operated, Alameda Research. That was more than half of the reported $16 billion in customer-owned assets FTX had in its custody. Alameda was one of those operations where you’re told just to trust that really, really smart computer geeks are taking a small amount of money and making it into a big amount of money using computer wizardry you can’t understand. But everyone can understand zero — which is the amount venture cap giant Sequoia Capital is expecting to get back on its mammoth investment in FTX. If you want a deeper, better explanation of what happened at FTX, click here.

Earlier this year, SBF was on stage with former Democratic President Bill Clinton at a conference in the Bahamas. It was one of the most high profile examples of his attempt to ingratiate himself with the Washington, D.C. political class, from financial academics and regulators to prominent politicians. And they were willing to entertain his ideas about cryptocurrency because he was spending money like an inebriated sailor on left-wing causes.

For Democrats, SBF represented a cash bonanza. To put his giving in perspective, he was the second largest donor to Democratic causes in the 2022 cycle, topped only by George Soros. His “Protect Our Future PAC” spent millions supporting liberal candidates for the House, including $10.4 million on Carrick Flynn in Oregon (he lost), $1.9 million on Lucy McBath in Georgia, and $1.4 million on Jasmine Crockett in Texas.

Ironically, SBF’s big D.C. push has been all about regulation of the cryptocurrency industry, the kind of regulation that might have prevented him from misusing customer funds. But now the former media darling had better hope his lavish spending on politics earned him enough friends in the nation’s capital to call in a few favors, the kind of favors that might help him avoid the fate of other rise-and-fall financial whizzes, like Bernie Madoff.

LEAVE A REPLY

Please enter your comment!
Please enter your name here