News : An FTX pox on both houses

Monday, December 19, 2022

An FTX pox on both houses

Dec 19, 2022

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Sam Bankman-Fried is reportedly telling his Bahamian jailers that he's giving up his extradition fight and will "face the music" on wire fraud, money laundering and campaign finance charges in the U.S.

Politicians whose campaigns were flooded with FTX cash are starting to reckon with what that tune might sound like.

"Politicians really don't like giving money back. They really don't," Mick Mulvaney, a former congressman and White House chief of staff to President Donald Trump, told MM.

U.S. Attorney for the Southern District of New York Damian Williams instructed political groups last week to cooperate in the potential recovery of "tens of millions of dollars" that Bankman-Fried and others obtained to allegedly "buy bipartisan influence and impact the direction of public policy in Washington."

The Democratic National Committee, Democratic Congressional Campaign Committee and Democratic Senatorial Campaign Committee have started to set aside amounts that equal Bankman-Fried's contributions until they receive further instruction.

Some lawmakers have already begun to cut checks to charitable organizations in amounts equal to what they received from Bankman-Fried, FTX executive Ryan Salame — who spent $24 million on GOP races in the midterms — and other FTX-linked groups. (Political giving was hardly the only prong in FTX's influence strategy — Laura Wagner at Defector was unsparing in her analysis of how SBF-backed media companies now face similar dilemmas.)

But while the clawback of FTX's $70 million-plus in political spending would cause chaos in fundraising circles — NYT's Ken Vogel and Ken Bensinger reported that House Majority PAC, which received $6 million from SBF, had less than $500,000 on hand as of last month — it's also created an unusual dynamic as crypto policy debates heat up.

Both parties got flooded with FTX cash. So — for now anyway — few in Congress are making that big a deal out of it.

"I don't remember anybody making that big a deal out of the political contributions that SBF made" in last week's congressional hearings on the collapse, said Mulvaney — who now advises the crypto compliance company Astra Protocol on its U.S. strategy. "I know it's an issue. It's been discussed in the press — I get all that — but I don't remember it being a central feature of those hearings, which is probably a good sign [for crypto policy] because it doesn't mean it's overly politicized yet."

Of course, just because FTX's political giving wasn't a major factor in last week's hearings doesn't mean it won't be moving forward.

Rep. Brad Sherman of California, a key Democrat on House Financial Services, has fired several broadsides aimed at Bankman-Fried's influence campaign. Senate Banking Chair Sherrod Brown (D-Ohio) — a leading crypto skeptic on the Hill who's working on his own crypto bill — has also raised red flags about the industry's attempts to sway regulation.

Just as importantly, Williams last week said that SDNY's investigation into FTX remains active.

"This investigation is very much ongoing, and it is moving very quickly," he said.

IT'S MONDAY — Happy Hanukkah! A certain MM host's wonderful in-laws drove down from The Bronx to drop off (delicious) latkes and brisket on Sunday night. How do you dress your latke? Please send tips to ssutton@politico.com and zwarmbrodt@politico.com.

A message from Binance:

It's been a tough year for crypto. After unprecedented fraud and mismanagement, industry confidence has been shaken. As the world's largest crypto exchange, Binance believes greater transparency is critical. At Binance, user assets are backed 1:1 and our capital structure is debt-free, and we are eager to work with regulators to help bring order to the markets. Learn more about our commitment to moving forward in Politico this week.

DRIVING THE WEEK

Monday … The Senate convenes at 3 p.m. to consider Martin Gruenberg's nomination to the FDIC board .… The SEC holds a closed meeting at 4 p.m. … Tuesday … Housing starts data will be released at 8:30 a.m. … The Brookings Institution will hold an event on crypto regulation at 9 a.m. … Wednesday … Peterson Institute for International Economics will hold a panel on free trade at 9 a.m. … Consumer confidence index will be released at 10 a.m. … Home sales data will be released at 10 a.m. … Thursday … Q3 GDP revision will be released at 8:30 a.m. … Index of leading economic indicators will be out at 10 a.m. … Friday … PCE and durable goods orders data will be released at 8:30 a.m. … University of Michigan consumer sentiment and inflation expectations data will be released at 10 a.m. … New home sales data will be released at 10 a.m.

THE TWITTER DAZE — It has been a wild few days for Elon Musk and Twitter. First, the social media platform suspended the accounts of several high-profile journalists and commentators who cover Musk on the grounds that they'd doxx'd his location in reporting on a Twitter account that tracked the billionaire's private jet with publicly available information.

— POLITICO's Rebecca Kern later reported that he reversed the suspension of most of the accounts after reviewing the results of "an unscientific poll he'd posted on his account the day before, where he asked users to vote on whether the suspensions should be lifted immediately or extended for a week."

— Semafor's Liz Hoffman and Reed Albergotti scooped that Musk was trying to raise capital for the flagging social network at $54.20 per share — the same price he paid for the company earlier this year (Musk says he overpaid).

— The world's second-wealthiest man found time in the chaos to fly to Qatar to take in the World Cup final with Jared Kushner, per The Washington Examiner's Brady Knox. Axios' Dan Primack noted on Twitter that Qatar's sovereign wealth fund plunged $375 million into Musk's acquisition of the company.

— Finally, Musk decided to put his future as Twitter's top executive to a Twitter poll. "As the saying goes, be careful what you wish, as you might get it," he wrote in a follow-up post. Never a dull moment.

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Wall Street

ORDERING "WE'RE NOT A CARTEL" T-SHIRTS — Bloomberg's Alastair Marsh: "At a recent climate-finance meeting attended by Wall Street giants including BlackRock Inc. and Goldman Sachs Group Inc., no one spoke until a lawyer had finished reading out a disclaimer stating the group was not a cartel. The newly formed ritual is a direct reaction to the increasingly hostile position of the Republican Party toward firms trying to incorporate environmental, social or governance factors into their strategies."

— FT: "BlackRock weathers political storms to pull in more funds than its rivals"

BRACE FOR IMPACT — Reuters's Saeed Azhar and Lananh Nguyen: "Goldman Sachs Group Inc is planning to cut thousands of employees to navigate a difficult economic environment."

— Bloomberg's Julia Fioretti, Swetha Gopinath, and Filipe Pacheco: "Initial public offerings are heading for their longest drought since the global financial crisis — and bankers don't expect a revival anytime soon. A mix of rising inflation and interest rate hikes aimed at taming it have hurt stock market valuations and eroded investor appetite for the high-growth IPO candidates that have driven deals in recent years."

Markets

FSOC EYES REAL ESTATE — Our Victoria Guida: "Regulators on Friday warned that potential losses in commercial real estate are a looming risk for the financial system and urged banks to monitor their exposure to the sector."

WILL ITS GOLDEN SUN STILL SHINE FOR ME? — NYT's Conor Dougherty and Emma Goldberg: "Today San Francisco has what is perhaps the most deserted major downtown in America … More ominous for the city is that its downtown business district — the bedrock of its economy and tax base — revolves around a technology industry that is uniquely equipped and enthusiastic about letting workers stay home indefinitely."

REFINANCINGS ARE COOKED. HERE COME THE BUYDOWNS — WSJ's Gina Heeb and Nicole Friedman: "Rising borrowing costs have dramatically increased the cost of buying a home this year, reviving interest in mortgage products like temporary buydowns that fell out of favor after the 2008 financial crisis."

A VC WALKS INTO A CLINIC — WSJ's Rolfe Winkler: "Clients of digital mental health companies described to The Wall Street Journal how they were badly matched or encountered unprofessional therapists … Investors last year poured $4.8 billion into startups offering digital mental-health services … Some of the companies provide therapy, some prescribe psychiatric drugs and some do both."

A message from Binance:

Fed File

HAWKS FLYING — Bloomberg's Craig Torres and Catarina Saraiva: "The pivotal question for Fed officials is whether the climb in US pay over the past 18 months or so is a one-time bump — as companies adjust to scarce labor supply, and a realization that their workforce was under-compensated — or a pernicious feedback loop in which prices and wages drive each other up … The signs are that they're not willing to take any chances, which means [Fed Chair Jay] Powell's new lodestar points toward tighter policy."

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Crypto

IT'S LONELY AT THE TOP — Bloomberg's Michael P. Regan, Yueqi Yang, and Olga Kharif: "The worries [around Changpeng Zhao's Binance] surfaced again on Friday as the accounting firm Mazars Group halted work for Binance and other crypto firms on reports that are meant to demonstrate that the companies hold the necessary reserves needed to cover any potential surge of customer withdrawals."

REMEMBER ALL THOSE CRYPTO VIDEOGAME STARTUPS? — WSJ's Clare Ansberry: "Gaming and gambling problems are surfacing among young men, and increasingly, teen boys, say counselors, therapists and addiction experts. They cite the rise in time spent online during the pandemic, the legalization of sports betting in a growing number of states, and the increasing presence of gambling-like elements in videogames."

Fly Around

A major overhaul of the [EU's] flagship carbon market and a brand new fund to protect vulnerable people from rising CO2 costs were agreed on by EU negotiators in the early hours of Sunday as part of a "jumbo" trilogue that started on Friday morning. — POLITICO's Federica Di Sario

The number of Covid-positive dead arriving at Beijing's funeral parlors and crematoriums is rising, according to media reports, despite China not reporting a fatality from the virus for two weeks. — Bloomberg's Emma O'Brien

A message from Binance:

It's been a tough year for crypto. Macroeconomic headwinds have ushered in challenging market conditions, followed by unprecedented fraud and mismanagement. The combination rocked consumer confidence and created a level of skepticism about the future of crypto. Binance strongly believes crypto's best days remain ahead, but to get there, transparency is the only path forward. At Binance, we are investing in transparency protocols to demonstrate our strong financial health. Our capital structure is debt-free and all user assets are backed 1:1. Binance does not borrow against customers' funds or invest them without their consent. Most importantly, we look forward to working with policymakers to better protect consumers while promoting innovation. Learn more about our commitment to moving forward in Politico this week.