An S.B.F. Campaign Finance Whodunnit

Sam Bankman-Fried was indicted yesterday on more than a half-dozen criminal and civil charges, including violating campaign finance law. Photo: Tom Williams/Getty Images
Theodore Schleifer
December 14, 2022

Since the beginning of Sam Bankman-Fried’s implosion, the feeble hope among his inner circle of political and philanthropic fixers has been that the widening scandal would be ring-fenced to whatever happened between the sheets at FTX, Alameda Research, and his business empire. In short, whatever the charges against S.B.F.—wire fraud, conspiracy to defraud investors, etcetera—that at least there was no funny business in the corner of his operation that dealt with giving the money away. In fact, just last week Sam addressed this categorically. “Can you confidently say, for the record, that there was no financial impropriety on the political and philanthropic side of your work?” I asked him. “Obviously I’m not omniscient,” he replied, “but I don’t think there was any.”

That too appears to have been a deception, at least if you believe the prosecutors at the alphabet soup of federal agencies—the S.D.N.Y. at D.O.J., the S.E.C. and the C.F.T.C.—that indicted Bankman-Fried yesterday on more than a half-dozen criminal and civil charges, including violating campaign finance law. Yes, that’s the dreaded “giving the money away” part. But it remains unclear how S.B.F. violated these laws, or in support of which campaigns. Among the five paragraphs in the criminal indictment that constitute Count Eight (“Conspiracy to Defraud the United States and Violate the Campaign Finance Laws”), there are close to zero concrete details regarding the alleged conspiracy, by “the defendant, and others known and unknown,” to deceive the Federal Elections Commission.

Over the last 24 hours, there has been ample speculation across the Democratic consultant-verse and among S.B.F. insiders and friends about this particular charge—and who those “known and unknown” associates might be. After all, several Democrats noted to me, “don’t lie on F.E.C. forms” is sort of Campaign Finance 101. But S.B.F. has always had a knack for pushing the envelope in political donations. Sometimes too far.

Count Eight is vague, and shrouded in legalese. But it essentially boils down to what are known as “straw donations”—donations that are intentionally made in the name of someone else in order to circumvent contribution limits or hide the true identity of a donor. In the press release accompanying the indictment, prosecutors allege that Alameda Research, the hedge fund at the heart of S.B.F.’s alleged scheme, was donating “millions of dollars” to “federal political candidates and committees in advance of the 2022 election,” but putting the contributions in the names of unnamed “wealthy co-conspirators” in order to “ evade contribution limits and reporting requirements.” 

At the press conference, the U.S. Attorney for the Southern District, Damian Williams, cranked up the rhetoric but wouldn’t divulge more specifics beyond that “tens of millions” in illegal campaign donations had been “disguised” and made to both Republicans and Democrats, and the proof of the “dirty money” was soon to come. S.B.F.’s attorney said in a statement Tuesday that he was reviewing the claims but had no immediate response to the allegations.

Without indulging too much speculation, there are several theories making the rounds in S.B.F.’s network that offer some contours to Williams’ riddle. First of all, to decode what prosecutors are saying between the lines, it’s important to understand that corporations cannot make contributions directly to campaigns or party committees—so-called “hard-dollar” groups—but only to “soft-dollar” groups, such as super PACs and dark-money political nonprofits. There was nothing to stop S.B.F.’s companies (or at least those entities based in the U.S.) from making unlimited donations to disclosed super PACs or undisclosed dark-money groups. To wit, FTX’s U.S. entity donated big money directly to Mitch McConnell’s super PAC, and was presumably within its rights to do so. More likely then, the campaign finance charge against S.B.F. doesn’t relate to outside money groups. Rather, the language in the indictment suggests we’re talking about beneficiaries like campaigns and party committees (no, the beneficiaries aren’t yet named, either).

Let’s assume, for the moment, that S.B.F. was being truthful when he said, just the other week, that he had secretly donated millions of dollars to Republicans, via dark-money groups, in order to keep his involvement out of the press. “Dark money” is, of course, the common pejorative for nonprofit groups that claim, on paper, to be nothing more than “social welfare” organizations. (The ethics group CREW filed a complaint over precisely this issue to the F.E.C. the other day.) Is it possible, as some people within S.B.F.’s orbit believe, that the campaign finance charge pertains to his funding of these sorts of groups? When I interviewed Sam last week, he wouldn’t “talk about the details” of his G.O.P. giving. Nevertheless, dark-money contributions are not—on their own, at least—a violation of any campaign-finance law, whether the money came from Sam personally, or from Alameda. So where did he cross the line?

Unindicted Co-Conspirators

There are three other theories that fit the explosive campaign finance allegation. The most straightforward one posits that Alameda was the direct donor behind contributions that were listed under the name of other donors, such as S.B.F. or any of the fellow “co-conspirators.” As an example, when Nishad Singh made a donation to a congressional candidate, some wonder, was that contribution really from Nishad, or was it from Alameda directly? 

Many S.B.F. insiders and other Democrats over the last 24 hours have suggested to me—without evidence, to be clear—that the D.O.J.’s campaign-finance charge could explain how FTX executive Ryan Salame, as another example, donated to various G.O.P. candidates. Was that money really from Alameda, but just had Ryan’s name on it? That might also, in a roundabout way, explain S.B.F.’s comment about G.O.P. “dark money.” But that doesn’t entirely add up either: Salame had his own wealth from FTX, after all, and was able to finance his own super PAC with $15 million—unless that too was from Alameda.

Another theory making the rounds revolves around reimbursements. The straw-donor ban could be violated, in theory, if Sam or other FTX executives were the true donors listed on F.E.C. forms, but they were immediately reimbursed by the business. That’s illegal. You can think of this as a person essentially expensing a political check as part of an effort to circumvent federal contribution limits (around $3,000-per-person). If, for instance, various S.B.F.-connected people were making max-out contributions to, say, Carrick Flynn, who ran for Congress in Oregon on S.B.F.’s dime, but then were made whole thanks to reimbursements from Alameda or FTX or Sam himself, that would certainly raise eyebrows with regulators. And while it would be irresponsible at this point to name specific names, there is certainly some chatter about various S.B.F.-connected, not-that-rich individuals who cut an unusually large number of political checks in recent years.

A third theory that has made its way to me is that the S.D.N.Y was speaking rhetorically when it tacked on the campaign finance charge—that S.B.F. was effectively stealing FTX customer money for Alameda projects by funneling that money, accrued via Alameda, toward his own political projects. If true, you could make the argument that those donations from S.B.F. were really donations from Alameda. In fact, that’s how the S.E.C. charging documents describe the situation, accusing Sam of having “used Alameda as his personal piggy bank” in part to finance “large political donations.” Perhaps the S.D.N.Y. is being a little too clever with its framing of the alleged crime.

And just because the S.D.N.Y. alleges something doesn’t mean it’s true. As one source pointed out, a “straw donation” scheme could look, at first glance, to be fairly similar to a coordinated fundraising push that S.B.F. and his network definitely did engage in, trying to get multiple people to move money to the same entities at the same time. What would that look like? Maybe an “I’d donate more if I could. Would you like to?” conversation. That’s not illegal—in fact that’s a huge part of how modern political fundraising and bundling works. 

Another defense of S.B.F.—by way of backhanded criticism, I suppose—is that on multiple occasions this cycle, Sam’s political entities have been notably sloppy when it comes to compliance and accounting. I can recall several instances that are now freshly relevant. First there was the fact that Protect Our Future, in its first ever campaign-finance report, originally said that all of its money came from Prime Trust LLC, a crypto trust firm in Nevada, before capitulating to pressure from me and others and amending its report to acknowledge, for the first time, S.B.F.’s involvement in the super PAC (to the tune of $13 million). Then there was the time that Protect Our Future, apparently accidentally, declined to file an F.E.C. report in the runup to the Flynn election, only doing so after I flagged that they had somehow ignored the deadline.

Williams, the U.S. Attorney overseeing the case, has promised that he’ll share more information, in due time, about the precise nature of the campaign-finance dimension of the S.B.F. scandal. Straw donations usually leave some paper trail, and therefore can be easy to prove (see: Igor Fruman and Lev Parnas). Presumably the Southern District is not inventing these allegations from whole cloth. In the meantime, Democrats and S.B.F. allies I talk to are bracing for impact. Until yesterday, it was presumed that any civil or criminal charges against Bankman-Fried or FTX would focus on alleged financial impropriety. Now, it appears, there will be a political meteor, too.