Sponsors of a cryptocurrency regulation bill that disgraced former FTX CEO Sam Bankman-Fried had aggressively pushed argued Thursday that the measure is even more urgent in the wake of the crypto giant’s collapse, as Congress launched its official response to the worst meltdown yet to rock the $865 billion industry.
“If our bill had been law, FTX’s conduct would have been illegal and could have been prevented,” Stabenow said at a hearing she convened to look into the company’s failure and how Congress should respond.
CFTC Chairman Rostin Behnam, a former Stabenow staffer and the only witness at the hearing, agreed. He said the bill — officially the Digital Commodities Consumer Protection Act — “would have prohibited” conflicts of interest, abuse of customer funds and lack of corporate governance and risk controls alleged to have contributed to the FTX blowup.
Advocates of stricter financial regulation dispute the claim. “No one knows most of the facts about the FTX implosion so no one can legitimately claim that the Senate [Agriculture] bill would have prevented anything,” Better Markets president Dennis Kelleher said. “FTX endorsed that bill and spent tens of millions of dollars trying to buy the appearance but not the reality of regulation by [the] smallest, least-funded and most-capturable financial regulator, the CFTC, rather than the real cops on the beat at the SEC.”
Behnam’s office provided extensive input on the bill. It would expand his agency’s power by authorizing it to police spot-market trading of bitcoin and ethereum, which together account for roughly 55 percent of the value of all digital assets.
The measure was also FTX’s top legislative priority. Bankman-Fried argued to other crypto executives that the industry would receive more favorable treatment from the CFTC than the Securities and Exchange Commission, which is much larger and has staked out a more aggressive posture toward crypto interests.
On Thursday, Behnam bristled at the notion that the disgraced executive expected light-touch treatment from his agency — a criticism that SEC Chairman Gary Gensler hinted at last month.
“I patently reject that suggestion,” Behnam said.
The regulator’s interactions with Bankman-Fried and FTX have come in for heightened scrutiny in recent weeks. In addition to aligning on the crypto bill, Bankman-Fried and his team were lobbying the CFTC to approve a controversial application that would have allowed mom-and-pop investors to make sophisticated cryptocurrency bets with borrowed money directly on an FTX platform, rather than making such trades through brokers.
At the hearing, Behnam acknowledged the company was “dogged in their approach” to winning the CFTC’s blessing. He said a review of his calendar showed he met with the FTX team 10 times over the past 14 months on the matter, in addition to exchanging emails and other messages.
The FTX bankruptcy has remade the debate over crypto regulation. Other top policymakers are arguing for a tougher brand of federal oversight than what FTX was advocating, as the company has transformed from Washington darling to villain.
Bankman-Fried and one of his top deputies, former FTX Digital Markets CEO Ryan Salame, spread tens of thousands of dollars in campaign contributions to lawmakers on the Senate Agriculture Committee for this year’s elections, part of a multimillion-dollar blitz that saw the two executives emerge among the top overall donors in the country.
Of the nine senators on the committee who benefited from FTX largesse, six said they are donating the money to charity, according to their offices. They include Stabenow and Boozman, who each received $23,200; Sen. Kirsten Gillibrand (D-N.Y.), who received $10,800; Sen. Tina Smith (D-Minn.), who received $5,800; Sen. Cory Booker (D-N.J.), who received $5,700; and Sen. Richard J. Durbin (D-Ill.), who received $2,900.
Three did not respond to requests for comment. They include Senate Minority Leader Mitch McConnell (R-Ky.), who is aligned with two campaign accounts, the Senate Leadership Fund and Team McConnell, that together collected $1.12 million from FTX sources in October, according to federal filings. Sens. John Thune (R-S.D.) and Joni Ernst (R-Iowa) collected $9,200 and $8,700, respectively.
Craig Holman, an ethics expert at Public Citizen, said the volume of FTX’s campaign giving was “absolutely breathtaking,” and that all the money should be disgorged by lawmakers focused on crafting crypto regulations. “Now that we know most of this money came through fraud and much through undisclosed avenues, these donations were meant to buy favors from Congress, not to reward admirable lawmakers,” he said.
Before the hearing on Thursday, Bankman-Fried tried to tilt the narrative in his direction with an early-morning TV appearance. In a “Good Morning America” interview with George Stephanopoulos in the Bahamas, Bankman-Fried pleaded for forgiveness — and pleaded ignorance.
“I should have been on top of this. And I feel really, really bad and regretful that I wasn’t,” he said of the alleged porousness between FTX and Bankman-Fried’s crypto hedge fund Alameda Research, adding, “I did not know that there’s any improper use of customer funds.”
The interview capped an unlikely media week for Bankman-Fried. On Tuesday, the video blogger Tiffany Fong posted an audio interview with him, and on Wednesday, Bankman-Fried sat for more than an hour of grilling by New York Times columnist Andrew Ross Sorkin at the paper’s conference in New York.
The fallen executive acknowledged in his conversation with the Times that his lawyers have advised against him keeping such a high profile. But he has pressed on out of what he says is a sense of explanatory duty — and what critics say is a blatant attempt at revisionism.
Bankman-Fried told Ross Sorkin that he didn’t try to use campaign donations to influence regulators on crypto — the money he gave to campaigns was meant to further the cause of pandemic prevention, he said.
“I spent hundreds of hours, probably thousands of hours, in D.C. trying to get to the point where I could even have meetings with some of the relevant regulators. That was not a money thing. Gary doesn’t even have a campaign to donate to,” he said, referring to SEC chair Gensler.
Bankman-Fried said he saw a potential congressional appearance in his future. The House Financial Services Committee has scheduled a hearing this month where Rep. Maxine Waters (D-Calif.), the panel’s leader, says she wants him to testify, but he hasn’t yet confirmed he’ll attend.
“I would not be surprised if some time I am up there talking about what happened to our representatives,” he added.