Democrats at Risk of Returning FTX Political Donations

Cryptocurrency exchange FTX, founded by former CEO Sam Bankman-Fried, owes an estimated $3.1 billion to its 50 largest creditors. Photo by Cointelegraph/Wikimedia Commons.
Cointelegraph/Wikimedia Commons.

Millions of FTX donations to Democrat candidates during the last 18 months could be at risk of needing to be repaid to the failed cryptocurrency exchange, but some Democrats have said they will not return the funds.

“I’m not going to send money to a guy sitting in a Bahamman jail, that’s for sure,” Rep. Jake Auchincloss (D-MA) told WBUR on Tuesday. “That money is out the door helping to elect Democrats.”

Whether Auchincloss has to return the donations to the cryptocurrency exchange will likely be up to a judge.

In total, nearly $70 million in political donations connected to Sam Bankman-Fried’s FTX may need to be returned, experts told Bloomberg about the bankruptcy proceedings of the cryptocurrency exchange.

According to attorney Ilan Nieuchowicz, the major factor in whether politicians will have to return the money is based on if fraud or fraudulent intent was a part of FTX’s downfall. “If so, nearly all the donations tied to FTX could be a target for recovery; if not, then only donations made within 90 days of the company going insolvent — a total of about $8.1 million — might be subject to recapture,” Bloomberg’s Laura Davison, Bill Allison, and Allyson Versprille reported.

While a 2011 precedent exists for political entities to refund political donations in fraud-related cases, it is unknown if the FTX case will fall under the precedent. Sixty-three percent of the money donated was given to PACs and campaign committees and will be the most vulnerable to be recovered by FTX, according to the report. The campaign contributions to individual candidates will be more difficult to recover because they are smaller amounts.

Bloomberg reported about the 2011 precedent:

Campaign contributions have been clawed back by bankruptcy trustees before. In 2011, a district court judge ordered five party committees, including the Democratic National Committee and its Republican counterpart, to return donations totaling $1.6 million that they’d received between 2000 and 2008 from Allen Stanford, one of his top lieutenants and his Stanford Financial Group, which was part of a Ponzi scheme he operated until its collapse in 2009.

Though the party committees hadn’t known the money donated was part of the proceeds of a criminal fraud, they were ordered not only to refund the contributions but to also pay interest and the legal fees of the bankruptcy trustee. Dozens of campaign committees and political action committees that received smaller donations received letters requesting the money be returned. Of those, 43 disgorged donations totaling $162,250 while 39 held on to $117,700, according to a disclosure by the trustee.

A number of Democrats have refused to return the money to FTX, instead donating it to charity. Donations to charity do not eliminate any claims of fraud. “The bankruptcy trustee could still ask that donations made by FTX donors be returned if courts determine Bankman-Fried and other FTX executives committed fraud,” the report stated.

Those who have donated the FTX-related funds to charity include election denier Rep. Hakeem Jeffries (D-NY), Sen. Dick Durbin (D-IL), and Reps. Chuy García (D-IL). Sen. Debbie Stabenow told Market Watch she intends to donate the portion of the funds she received to a charity. Sen. John Hoeven (R-ND) has reportedly given the FTX-related funds to the Salvation Army. Sen. Maggie Hassan (D-NH) refused to respond to Market Watch’s request for comment.

Open Secrets estimates Bankman-Fried and FTX executives donated about $70 million to political campaigns in the last 18 months. Bankman-Fried personally donated $40 million to left-wing initiatives, and more than $200,000 to Republicans, according to disclosures.

According to Open Secrets, candidates who received FTX-related funds include Sen. Mitt Romney (R-UT) $5,800, Sen. Ben Sasse (R-NE) $5,800, Sen. Cory Booker (D-NJ) $5,700, Sen. Alex Padilla (D-CA) $5,800, Joe Manchin (D-WV) $5,800, Sen. Lisa Murkowski (R-AK) $5,800, Rep. Sean Patrick Maloney (D-NY) $5,800, and Sen. Kirsten Gillibrand (D-NY) $5,800.
The top five Democrat PACs that might be forced to give the money back to FTX pending a court ruling are: Protect Our Future PAC ($27,000,000), House Majority PAC ($6,000,000), GMI PAC ($2,000,000), America United ($1,300,000), and the Senate Majority PAC ($1,000,000).

On Tuesday, U.S. prosecutors charged Samuel Bankman-Fried, the founder and former CEO of cryptocurrency exchange FTX, with violating campaign finance laws, according to an eight count indictment released Tuesday.

Follow Wendell Husebø on Twitter @WendellHusebø. He is the author of Politics of Slave Morality.


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