The Boring Lobbyists Behind Sam Bankman-Fried

Lobbying is a giant conspiracy, but an incredibly boring one. Here are some of the emails attempting to engage in influence peddling. Prepare to nap.

Welcome to BIG, a newsletter on the politics of monopoly power. If you’d like to sign up to receive issues over email, you can do so here

As we’re all finding out, cryptocurrencies are fake money, merely notations on a spreadsheet kept by random Ponzi schemers or scam artists. If that’s the case, then what was the ultimate goal for people like Sam Bankman-Fried, who ran the crypto exchange FTX and his own trading firm Alameda? Why did he lobby so aggressively? And why was he targeting the left in particular?

To start we have to understand the strategy behind not just FTX, but the entire crypto world. The goal of the crypto insiders was to get people to buy their fake money with real money. One way to do that is to advertise to possible buyers, which FTX did, and to hype crypto, which a lot of crypto insiders also did. But that only gets you so far. What you really need is institutional money; insurance companies, pension funds, banks, aka the people who have to find a place to put trillions of dollars every year. If crypto could get a small slice of that world, then it would automatically have a huge stream of real money to exchange for fake money, along with all the political benefits that would bring.

Sam Bankman-Fried’s lobbying goal was to secure that institutional money, and he needed the legitimacy of a regulator to do that. Fancy institutions don’t like to just buy random assets unless a similarly fancy institution will validate it as credible But since he was running a Ponzi scheme, he couldn’t have a regulator that understood his business oversee what he was doing. Instead, he needed a regulator that looked like it was credible, but in fact could not do the job, to have jurisdiction. He needed a fake cop wearing a real-looking cop uniform. The answer, the crypto world found, was to have Congress explicitly give the Commodities Futures Trading Commission authority over cryptocurrencies and exchanges.

The CFTC isn’t a fake regulator, but it is not a regulator able to address cryptocurrencies. It is designed to oversee the trading of commodities, things like wheat and metals, stuff that you can touch. You can do stuff to manipulate wheat markets, but you can’t manipulate wheat itself. There is no financial issuer of wheat, it is a commodity that is grown somewhere and it either exists or it doesn’t. Wheat stands in contrast to things like stocks. You can’t reach out and touch a stock, it’s an abstract claim to a stream of earnings created by a group of people known as a corporation, and as such, you can much more easily manipulate it if you are one of the insiders in that corporation. IBM can issue more IBM stock, just produce it out of thin air. Stocks are known as ‘securities,’ and have a different regulatory scheme.

A financial instrument issued by a crypto exchange, bought and sold in the hopes of gain is more like a stock than wheat. It is a security, and as such, should fall under the jurisdiction of the Securities and Exchange Commission, or SEC. The problem for FTX with having the SEC oversee crypto is that the SEC actually regulates securities, and it would force Sam Bankman-Fried to disclose a bunch of stuff he wouldn’t have wanted to disclose, like the fact that he was a thief stealing his customers’ money.

But the CFTC doesn’t always roll over either, and this was Sam Bankman-Fried’s problem. Bankman-Fried was trying to get the CFTC to approve his creation of a special lightly regulated clearinghouse for crypto derivatives. Had the CFTC approved this clearinghouse, Sam Bankman-Fried would have been able control customer money, collateral, and accounts, liquidating whatever he wanted whenever he wanted. And it would all be ‘regulated,’ which is to say, institutions would have recognized he had the blessing of a regulator. Institutional money would have then flowed into crypto.

Getting approval for this clearinghouse required a majority of the CFTC, which Sam Bankman-Fried seemed to have. The Republican commissioners - Summer Mersinger and Caroline D. Pham - couldn’t be more subservient to FTX. Mersinger was a bit diffident, but Pham was so in the pocket of the industry that she actually tweeted out this celebratory photo after meeting with Sam Bankman-Fried (and his lobbyist, former regulator Mark Wetjen.)

But the Democratic commissioners - Kristin N. Johnson and Christy Goldsmith Romero - were not. This left the Chair as the swing vote, and the Chair of the CFTC is a guy name Rostin Behnam. Behnam, unlike his Democratic colleagues, lacked substantive understanding of securities or commodity trading. He’s a Senate staffer by training, a political operative. And while he was on Sam Bankman-Fried’s side, he was unwilling to openly force his Democratic colleagues to vote against him and push a 3-2 majority with only Republican support.

To give Behnam some air cover, FTX put on a full-court press amongst financial reformers on the left, in the hopes they could get some help convincing the two Democratic CFTC commissioners to relent. Naturally, there was attempted bribery, (orchestrated I’m told through Wetjen).

In late March, FTX officials began reaching out to Better Markets’ president, Dennis Kelleher, to discuss the firm’s application with the CFTC.

They noted Mr. Bankman-Fried is “a very generous person,” and floated the possibility of “a contribution of $1 million or more” to Better Markets, Mr. Kelleher said. After being told that a donation would not sway the group’s skepticism toward FTX’s application, an FTX official responded, “Oh, I don’t think Sam would agree to that.”

“It was a direct quid pro quo,” Mr. Kelleher said. “No ambiguity.”

It didn’t work, or at least, it didn’t work in time. I’m generalizing here, but left-wing financial reform groups are full of people who could work in finance at much higher pay, but choose not to do so because they don’t like corruption. They also understood what crypto insiders were trying to accomplish. Nevertheless, the SBF crew continued the full-court press. Below are some of the emails from Rational 360, a lobbying firm full of Obama alumni, encouraging financial reformers to take pro-FTX positions.

They asked recipients to tweet in favor of a bill that would move regulatory authority over crypto to the CFTC, and to be supportive of CFTC Chair Behnam, who was testifying in support of the bill. The email text is boring, exactly what you’d expect, invitations and encouragement, but this is how influence peddling happens. I’ve redacted personal details because I was asked to do so by the person sharing the emails.

---

XYZ,

Thanks for taking the time to learn more about FTX’s risk model.

As you may know, the Senate Agriculture Committee is holding a hearing tomorrow on the Stabenow-Boozman legislation – The Digital Commodities Consumer Protection Act – at 10 am ET.

CFTC Chairman Behnam will be testifying on the first panel.  Click here if you’d like to watch the hearing.

It’d be great if you could tweet support for the bill during the hearing.  Below are a few tweets for your consideration. Feel free to craft your own if you’d like.

Thank you,

  Bipartisanship and the CFTC Providing Regulatory Clarity

• [CLICK TO TWEET] Big bipartisan step forward today between @SenateAgDems and @SenateAgGOP on #DCCPA legislation that would give @CFTC the ability to provide regulatory certainty & encourage innovation of crypto and digital assets!

• [CLICK TO TWEET] It’s great to see @SenateAgDems and @SenateAgGOP working together on #DCCPA to create regulatory certainty for the cryptocurrency industry, promote financial access, and ensure consumer protection. 

• [CLICK TO TWEET] 3 things I learned at today’s #DCCPA hearing led by @SenStabenow and @JohnBoozman 1) America needs regulatory certainty of digital assets and #crypto; 2) any effort should protect consumers & be inclusive; 3) @CFTC is the right choice for this effort.

• [CLICK TO TWEET] The #DCCPA would provide regulatory clarity for digital assets, promote financial inclusion, and protect consumers. Thank you @SenStabenow & @JohnBoozman for leading this effort!

• [CLICK TO TWEET] Great to see @SenStabenow and @JohnBoozman working hard to position America as the leader of digital assets now and in the future. They make a compelling case for the @CFTC to responsibly regulate an industry many are excited about. #DCCPA

• [CLICK TO TWEET] #DCCPA is a step in the right direction for digital assets and #crypto. Big takeaway from today’s hearing w/ @SenAgDems and @SenAgGOP was bipartisan effort to keep U.S. at the forefront of digital commodities & recognizing we need the @CFTC to provide regulatory certainty.

• [CLICK TO TWEET] Great seeing Congress working together on legislation that will have generational impact. Proud to support #DCCPA to provide regulatory certainty for digital assets, protect consumers, and empower them to make more informed trading decisions.

Bipartisanship and American Competitiveness

• [CLICK TO TWEET] The U.S. has an opportunity to be the leader in digital assets, but we need to act now. Good to see @SenStabenow and @JohnBoozman leading to create regulatory certainty and ensure the US remains the leading financial market. #DCCPA

• [CLICK TO TWEET] Today’s #DCCPA hearing showed why the US must lead the way in digital asset adoption – financial inclusion, consumer protections & setting clear standards for the industry. Great work by both @SenAgDems and @SenAgGOP.

• [CLICK TO TWEET] Plain & simple – America needs to remain the leading financial market & most innovative economy in the world. @SenStabenow, @JohnBoozman, @SenBooker, & @senjohnthune are making this happen by giving the @CFTC the tools to responsibly regulate digital assets. #DCCPA

###

---

Thank you for letting us tell you more about what FTX is actively doing to promote regulatory clarity, robust consumer protections, and U.S. leadership in cryptocurrency. As we mentioned, FTX is also working to promote financial inclusion and consumer education, including through an active initiative in Chicago in partnership with community-led organization Equity and Transformation and the City of Chicago. In addition to this, FTX is developing the first comprehensive online digital asset library in partnership with the Blockchain Foundation and the American Librarian Association, with the objective of promoting free, accurate and accessible consumer education around digital assets.

As we mentioned, FTX’s co-founder and CEO Sam Bankman-Fried will visit Washington, DC this October. If XYZ and other senior members of XYZ are amenable to it, we could schedule a meeting with Sam Bankman-Fried... This could be an opportunity for us to establish an open dialogue around creating safe and affordable financial transactions for American consumers, particularly those who are on the margins of the financial system.

Thank you again. We look forward to continuing the conversation.

---

XYZ,

I hope you’re doing well. I wanted to give you an update about a diverse crypto coalition FTX is setting up focusing on outcomes-based regulation and financial inclusion efforts.  There will be no cost to join or time commitment and we’ll provide the opportunity for members to meet with regulators, members of Congress, publish articles, and more. 

Would you be open to hearing more from Mark and having XYZ potentially join the coalition?

Thank you,

---

I work with FTX, a cryptocurrency exchange serving over 5 million investors and over $60 billion in peak daily transactions.

I’m reaching out because we would like to meet with you to discuss an initiative FTX is working on to increase the competitiveness of financial markets and expand investor choice.  

The existing regulatory framework favors traditional financial institutions, limits consumer choice, and creates systemic risk. There is an urgent need to create competition in the financial industry – one way to accomplish this is by giving consumers direct access to certain margined products, instead of depending on traditional institutions as intermediaries.

This would shift market power toward end investors and expand access to financial markets.

The cryptocurrency industry is growing rapidly worldwide. The United States should lead in an industry that has the potential to transform financial markets and the broader economy. Unclear and burdensome regulation, however, stands in the way of that opportunity.

I would appreciate the opportunity to meet with you to discuss this opportunity to promote competition and expand investor choice. Please let us know at your earliest convenience if you would be available to meet with us in the immediate future.

Thank you,

---

Are you bored yet? I am. But then, that’s why the bad guys have so much influence. They can pay a lot of boring people to peddle boring, evil things.