The expected testimony of cryptocurrency pariah Sam Bankman-Fried before the House Financial Services Committee on Tuesday is shaping up as a hugely awkward moment for committee Democrats whose campaigns he bankrolled.
Chairwoman Maxine Waters, California Democrat, said she wants to investigate the collapse of FTX, the now defunct multibillion-dollar crypto exchange founded by Mr. Bankman-Fried that critics have compared to a Ponzi scheme. But she said she doesn’t want “to get into” his political donations, of which $300,351 went to nine members of the committee, seven of them Democrats.
Ms. Waters herself has been cozy with the disgraced entrepreneur, posing for a photo with him in April that was apparently taken at a Bahamas conference hosted by FTX. The lawmaker’s husband is a former U.S. ambassador to the Bahamas, and the couple reportedly has stayed at the Bahamas’ home of Allyson Maynard-Gibson, a Bahamian politician who worked as a lawyer for FTX and whose daughter was an executive at the company.
At a committee hearing last year, Ms. Waters fueled considerable debate on social media about whether the kiss she blew was directed at Mr. Bankman-Fried or at Ms. Maynard-Gibson, who was seated behind him in the hearing room.
Since FTX declared bankruptcy and wiped out billions of investors’ money, Ms. Waters has been taking a polite but persistent stance toward Mr. Bankman-Fried. She urged him in a strange Twitter exchange last week to testify and tried to refute “lies” that she wasn’t willing to subpoena him.
“The collapse of FTX has harmed over one million people,” Ms. Waters told him. “Your testimony would not only be meaningful to Members of Congress, but is also critical to the American people.”
Mr. Bankman-Fried’s donations to members of the Financial Services Committee have raised concerns that the lawmakers will not try to hold him accountable. Rep. Chuy Garcia, Illinois Democrat, is the only committee member who said he would return a contribution — $2,900 — from the fallen crypto king.
But Mr. Bankman-Fried’s political action committee, Protect Our Future PAC, spent another $199,851 on ads supporting Mr. Garcia, who serves on the committee’s Digital Assets Working Group.
Federal Election Commission records show that four other Democrats on the Digital Assets Working Group received donations from Mr. Bankman-Fried and his associates: Reps. Ritchie Torres of New York ($40,300), Josh Gottheimer of New Jersey ($16,600), Sean Casten of Illinois ($9,100) and Jim Himes of Connecticut ($500).
Mr. Bankman-Fried also donated $11,600 to committee member Rep. Jake Auchincloss, Massachusetts Democrat.
In the last election cycle, Mr. Bankman-Fried spent about $37 million, almost all of which went to supporting Democratic candidates and causes. He was the Democratic Party’s second-largest donor.
Some observers believe the hearing will be more about giving lawmakers, who are accused of enabling Mr. Bankman-Fried’s alleged fraud, a chance to scold him and posture for TV cameras.
“This should be interesting,” tweeted L. Tom Block, a Washington policy strategist for the global financial consulting firm Fundstrat and a former congressional staffer. “From my Hill staff days, the goal of the hearing is not so much to get the truth but to make sure your boss gets their question on the news.”
The head of crypto exchange Coinbase, Brian Armstrong, criticized Ms. Waters for saying she would “welcome” Mr. Bankman-Fried’s testimony.
“I mean, this guy just committed a $10 billion fraud, and why is he getting treated with kid gloves?” Mr. Armstrong told the tech newsletter Stratchery. “Compare her tweets about Mark Zuckerberg for instance, who never stole $10 billion from people, whatever you think about the guy. …This tweet back and forth with Maxine Waters very politely asking him to attend a hearing, and him politely deferring, it was bizarre.”
He also blamed the mainstream media for being too soft on Mr. Bankman-Fried. The New York Times, Bloomberg and others have been called out for their favorable coverage.
“It’s been pretty bizarre to kind of watch the whole thing unfold, primarily because I do feel like mainstream media has given a lot of softball interviews,” Mr. Armstrong said.
In addition, Mr. Bankman-Fried’s company secretly funded a media company called The Block, which says it covers crypto news independently, Axios reported Friday. The report said the money was used in part to finance the purchase of an apartment in the Bahamas for Block CEO Michael McCaffrey, who has resigned as CEO and is leaving the company.
Mr. Bankman-Fried has been warning Ms. Waters not to expect much from his testimony if he does show up.
“I still do not have access to much of my data — professional or personal,” he told Ms. Waters. “So there is a limit to what I will be able to say, and I won’t be as helpful as I’d like. But as the committee still thinks it would be useful, I am willing to testify.”
The Justice Department and Securities Exchange Commission are believed to be investigating Mr. Bankman-Fried for alleged misuse of customer funds. He has not been charged but is widely believed to have commingled investors’ funds between three of his companies leading up to the collapse.
In interviews recently, Mr. Bankman-Fried has said he was largely ignorant of how the money was lost.
His testimony will likely be chilled by the prospect of criminal charges. Mr. Bankman-Fried has retained white-collar defense lawyer Mark S. Cohen, who recently defended Ghislaine Maxwell in her sex trafficking trial.
He told Ms. Waters that he “will try to be helpful during the hearing, and to shed what light I can on: FTX US’s solvency and American customers, Pathways that could return value to users internationally, What I think led to the crash [and] My own failings.”
John Jay Ray III, the new CEO of FTX, also is scheduled to testify at the hearing.
