The arrest of the FTX founder puts Democratic and Republican political leaders in a sticky situation.

Sam Bankman-Fried was arrested last week in the Bahamas on eight separate criminal counts. The Justice Department’s Southern District of New York indicted him on charges including wire fraud, securities fraud, conspiracy to commit fraud, money laundering, and campaign finance violations.

The first seven counts look most pressing for investors in Bankman-Fried’s bankrupt cryptocurrency exchange FTX, as well as for customers hoping to get their money back; the final one is the top concern for politicians in Washington.

Famously, Bankman-Fried was a top donor during the 2022 election cycle, giving nearly $40 million to mostly Democratic candidates (he later claimed to have given just as much to Republicans via dark money entities; his partner Ryan Salame gave $25 million to Republicans) . The Justice Department is now alleging that Bankman-Fried and “co-conspirators” made illegal campaign donations worth “tens of millions of dollars.”

The federal government is alleging serious violations of campaign finance law, which could bring substantial jail sentences of their own. First, they’re claiming that Bankman-Fried has been in violation of the straw donor ban, making donations “in the names of other persons.” The documents also allege that, because Bankman-Fried was using FTX funds to make personal donations, he also violated the ban on corporate contributions. Campaign finance law prohibits campaigns from taking money directly from corporations.

The first part is bad news for Bankman Fried. Violations of the straw donor law—which is one of the most serious campaign finance violations—are what landed notorious fraudsters Lev Parnas and Igor Fruman, as well as arch-right commentator and conspiracy theorist Dinesh D’Souza, in the clinic. The second part is bad news for Democrats.

The Justice Department is now alleging that Bankman-Fried and “co-conspirators” made illegal campaign donations worth “tens of millions of dollars.”

Charging documents from the Securities and Exchange Commission allege that Bankman-Fried “improperly diverted customer assets to his privately-held crypto hedge fund, Alameda Research LLC (“Alameda”), and then used those customer funds to make undisclosed venture investments, lavish real estate purchases, and large political donations.” In plainer English, Bankman-Fried is being charged with stealing customer funds from FTX and using that boosted corporate money to donate to politicians of his choice. And while the multimillion-dollar contributions via his super PAC, Protect Our Future, grabbed most of the headlines during election season with their eye-popping quantities, Bankman-Fried’s personal giving also looks to be in the crosshairs of the federal government’s case.

“The indictment is worded broadly enough that it could cover contributions to SBF made in his own name using FTX funds, and contributions that other people or entities made in their names but using SBF or FTX funds,” said Brendan Fischer, deputy executive director at Documented , an investigative watchdog group.

That personal giving was showered on Democrats all over Washington, including and especially Democrats’ new leadership class. For instance, Bankman-Fried gave the maximum possible amount to new top House Democrat Hakeem Jeffries, as did his brother Gabe Bankman-Fried. Sam Bankman-Fried also maxed out to Democratic Congressional Campaign Committee chair Sean Patrick Maloney and Sen. Kirsten Gillibrand, and donated to her political action committee. He donated to Rep. Ritchie Torres, too. That’s just in New York. He also maxed out to incoming House Democratic Caucus chair Pete Aguilar of California, newly the third most powerful Dem in the House.

He gave, too, to the consequential campaign arm PACs on both the House and Senate side for Democrats, including $5,000 to Team Blue PAC, the political action committee founded by Jeffries. FEC filings show three donations to the Democratic Congressional Campaign Committee, House Democrats’ most important campaign arm, totaling $250,000. He gave repeatedly to the Democratic Senatorial Campaign Committee, the senate side equivalent, and $1 million to Senate Majority PAC, the adjoining super PAC. Bankman-Fried’s PAC Protect Our Future gave $6 million to Democrats’ House Majority PAC as well. (To be clear, Republicans also got in on the action here, with the National Republican Campaign Committee, Susan Collins, and other prominent GOPers also on the take from Bankman-Fried).

Did all of that money come from FTX customer accounts? Well, we don’t know yet, and that’s the problem. “It’s going to be a bear for prosecutors to figure that out,” said Fischer. “But what they’re saying is that a portion of the contributions were made using customer funds.”

Worse still, those donations could be requisitioned in FTX’s bankruptcy proceedings, which are ongoing. As Bloomberg recently reported, “at least $73 million of political donations tied to Sam Bankman-Fried’s FTX may be at risk of being clawed back.” That figure seems to include all of his personal giving along with what came from his super PAC, as well as contributions from his top lieutenants to Republicans (more on that in a moment).

Politicians should be setting aside money with the expectation that donations from Sam Bankman-Fried will be clawed back in bankruptcy court.

Some Democrats have already realized the liability that these donations present, and have started a giving spree of their own. Sen. Debbie Stabenow, a Michigan Democrat who received $26,600 all told from Bankman-Fried, said that she plans to donate the money to a local charity. Congressman-elect Maxwell Frost, weeks away from officially becoming sworn in as the youngest member in the House, just announced that he too would be donating the Bankman-Fried money he received to charity. Many of the aforementioned Dems, including Jeffries, Aguilar, Gillibrand, and Torres have donated or said they intend to do so, too.

But not all Democrats are whistling on the same tune. In a recent interview, Rep. Jake Auchincloss of Massachusetts refused the idea of ​​turning over the money he got from Bankman-Fried. Also included was one of eight members of Congress to sign a letter in March calling for the SEC to back off its investigation into crypto firms including FTX. “I’m not going to send money to a guy sitting in a [Bahamian] jail,” he said in the recent interview. “That money is out the door.”

He’s right that much of the money Bankman-Fried gave to politicians has already been spent.

Many Democrats are now stuck between some ugly options: give up the equivalent amount of money via charitable donation, wait for it to be clawed back in bankruptcy court, or wait for it to be identified as stolen by the federal government. And while paying back several thousand dollars in donations is not a huge financial burden for senior Dems like Jeffries or Aguilar, the much larger donations to the DCCC, DSCC, and other campaign arms make the whole situation much more treacherous—and awkward.

Giving the money away doesn’t make the problems go away with it. Campaign finance attorney Brett Kappel recently warned in an Associated Press report that those politicians should be setting the money aside with the expectation that it will have to be sent back in bankruptcy court. The Federal Election Commission requires political campaigns and committees to return donations found to have been made illegally, even if new money has to be raised to facilitate that reimbursement.

In fact, it’s possible that the incoming DCCC and DSCC chairs, yet to be chosen, will have to raise money not to kick off the 2024 campaign cycle but to pay down those numbers and help get the Bankman-Fried donations off the books. Exceedingly few Democrats have been willing to put themselves up for those two jobs for this upcoming cycle; even without the Bankman-Fried headache, they have become widely understood as the worst jobs in Washington. Now they look that much worse.

Are Republicans in the clear? Absolutely not. FTX’s co-CEO Ryan Salame gave $25 million to Republicans, and the FTX’s top brass routed money to Senator Mitch McConnell and Representative Kevin McCarthy, as well as $3.5 million to the GOP’s Senate Leadership Fund super PAC. Bankman-Fried has claimed that he gave just as much in dark money to the GOP as he did in registered giving to Democrats. The details of that dark money still haven’t come to light. But it’s very likely Republicans will find themselves in a similar position. Sen. John Hoeven, a North Dakota Republican, has already announced that he gave $11,600—money received from Bankman-Fried and Salame—to the Salvation Army.

Back on the blue side of the aisle, critics have rightly said that the party courted this disaster by embracing the lavish spending of an overnight billionaire. Just a few weeks after election day, the decision to accept Bankman-Fried’s involvement in Democratic campaigns has become a political liability—fueling various conspiracy theories—as well as a financial one. At best, it was a massive tactical gaffe.

Don’t forget that Bankman-Fried, aside from his personal donations to candidates, left Democrats high and dry in the general election after pledging to spend exorbitantly. They got almost no advantage from his support once November rolled around. The obvious move from here would be to enact higher institutional barriers for billionaire involvement and super PAC spending in the democratic political process.

Still, even Democrats who have disavowed or donated the Bankman-Fried money still benefitted from it during election season; some members of the freshmen class might not be in Washington without the help of his machine. It’s an ugly and expensive start for a new class and new leadership regime. The bankruptcy and criminal proceedings, meanwhile, have only just started

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