Cryptocurrency: Noting The Carnage

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FTX Bankruptcy Puts $73 Million In Political Donations At Risk Of Clawbacks

At least $73 million in political donations tied to Sam
Bankman-Fried's FTX , showered mostly on high-ranking Democratic
politicians, may be at risk of being clawed back through the crypto
empire's bankruptcy, as lawyers search for assets to repay creditors.

Hilariously, Bloomberg attempts top frame the contributions as
bipartisan and "wide-ranging," despite Bankman-Fried, who's never met
President Biden, being heralded as "one of the people most
responsible" for Biden's 2020 win.

    Is that why SBF is "one of the people most responsible for Biden
being in office"? https://t.co/HYoude5zHr pic.twitter.com/hfs8LO94E3
    — zerohedge (@zerohedge) November 19, 2022

SBF also donated to Democratic Rep. Ritchie Torres of New York, who
just months ago was one of 8 members of Congress who lobbied against
regulating crypto (and is now totally calling for an SEC
investigation).

"Nobody ends up looking great in this," says University of Rochester
political science professor, David Primo.

    While there’s precedent for forcing political entities to return
contributions in cases of fraud, recovery prospects are unclear in
FTX’s case. Recouping campaign funds as part of the bankruptcy
proceedings is a complicated and lengthy process, and the scope of the
total funds eligible for clawback depends on myriad federal and state
laws. It is also subject to the bankruptcy lawyers’ judgment on what
money, which may be long spent by the time the FTX trustees try to go
after it, is worth the effort.

    Bankman-Fried is facing additional scrutiny for recently saying he
gave equally to Republicans and Democrats, but funded conservatives
through  “dark money” groups that don’t identify donors. The claim is
almost impossible to verify unless the recipients voluntarily disclose
they received money from him. -Bloomberg

One factor noted in the debate over clawbacks is whether the
bankruptcy court determines there was fraud or fraudulent intent
involved in the collapse of FTX, according to Ilan Nieuchowicz, a
litigator for law firm Carlton Fields. If that's the case, nearly all
donations tied to FTX could be a recovery target. If not, then only
those made within the 90-day period prior to FTX's insolvency, or
around $8.1 million, would potentially be subject to recapture.

Some lawmakers are being proactive - with Michigan Democrat Debbie
Stabenow announcing that she will donate $20,800 receive from SBF to a
charity in her state. Republican Jophn Hoeven (see, bipartisan!), says
he will give $11,600 received from SBF to the Salvation Army.

That said, donating the money to charity won't necessarily keep the
victims of fraud from attempting clawbacks - as the bankruptcy trustee
could still ask that the donations made by those who received FTX
money still return the funds.

    Of the $73 million Bankman-Fried, Salame, Singh and FTX corporate
entities donated, $45.5 million, or 63% of that total, went to their
own personal super-PACs, including Bankman-Fried’s Protect Our Future
and Salame’s American Dream Federal Action. Salame backed Republicans,
while Bankman-Fried and Nishad largely supported Democrats.

    Most of the money from those entities has already been spent, paid
to a long list of vendors to support various office seekers.
Bankman-Fried’s PAC only had $384,588 cash on hand as of late
November, the last time the entity was required to publicly report its
finances. -Bloomberg

Meanwhile, $26.6 million of FTX-linked contributions went directly to
large super PACs, including those who gave money to House and Senate
leadership of both parties (and of course, the proportion isn't
mentioned).

"It’s a lot easier to return a symbolic $1,000 contribution than it is
$1 million to a super PAC," said Charles Spies, who practices
political law at Dickinson Wright.

This wouldn't be the first time campaign donations were clawed back by
bankruptcy trustees. In 2011, a district court judge ordered five
party committees - including the DNC and its Republican counterpart,
to return $1.6 million in donations from Allen Stanford, one of his
top lieutenants, and his Stanford Financial Group, made between 2000
and 2008, before his Ponzi scheme collapsed in 2009.

According to attorney Kevin Sadler, "With contributions in the
millions, the trustee has to pursue it."