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

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.

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.

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.”

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.

The latest from the campaign trail

— In battleground states, candidates for offices that play key roles in election administration — secretary of state, governor and attorney general — made defending the electoral process against opponents who had helped spread misinformation a central part of their campaigns. Now they’re gearing up for the next challenge: running the 2024 presidential election, Times staff writer Arit John reports.

The view from Washington

— Though President Biden has yet to announce a reelection bid, Biden officials and Democrats are already planning for 2024. The Times’ White House correspondent Courtney Subramanian reports on their emerging strategy: make former President Trump the face of the GOP — a tactic that helped the party in an unexpectedly strong midterm election.

— Biden is hosting nearly 50 African leaders this week in an effort to show “renewed commitment” to a continent routinely neglected by the West, one that has been battered by coups and wars, poverty and the pandemic, but that also has seen vast Chinese investment in numerous nations, The Times’ Tracy Wilkinson and Courtney Subramanian report. It is the first U.S.-Africa summit since 2014 and takes place in the shadow of Russia’s war on Ukraine, which has diverted money and attention along with sending food and oil prices soaring around the world — nowhere more than on the African continent.

— The Supreme Court on Monday rejected a last-minute plea from the tobacco industry and cleared the way for California to enforce a statewide ban on the sale of most flavored tobacco products, including menthol cigarettes, Times staff writer David Savage reports. .

The view from California

— Sen. Dianne Feinstein (D-Calif.) said Monday that she has every intention of serving the remainder of her Senate term and is still deliberating whether to retire in 2024, Times writer Nolan D. McCaskill reports. The comments may finally close the door on any lingering speculation that the oldest sitting senator would step down earlier and allow Gov. Gavin Newsom to appoint a temporary replacement. .

— Just hours after his Los Angeles City Council term ended, Gil Cedillo released a three-page letter Monday titled “Why I Did Not Resign,” in which he shares his thoughts about the racist conversation and leak scandal that tarred his final months in office, Times writer Julia Wick reports. The 1,143-word document is the first time Cedillo has talked extensively about the incident.

— Mayor Karen Bass declared a state of emergency aimed at providing immediate relief to thousands of unhoused residents, a group of Times writers report. The emergency declaration was approved Tuesday by the City Council, giving Bass greater power to spend money on facilities and programs.

— While visiting a state-funded migrant center that provides services to asylum seekers near the Imperial County border with Mexico on Monday, Newsom criticized Republicans in Congress for politicizing immigration while failing to support comprehensive reforms, Times staff writers Taryn Luna and Hamed Aleaziz report.

Hey there, subscribers — our marketing team wants to hear from you. Fill out this short survey to help us keep sharing the stories that shape your world, free to your inbox.