How FTX used billions to influence The Swamp --- and then collapsed

Show Notes


“A massive crash and burn.” That is how Peter Schweizer describes the collapse of crypto-currency billionaire Sam Bankman-Fried and his ill-fated company, FTX.

The company has filed for bankruptcy, and reports indicate it owes its fifty largest creditors $3.1 billion dollars. Quite a cautionary business story.

But here on The Drill Down, we get into the political side of this story – the corruption and “regulatory capture” that allowed Sam Bankman-Fried to create such a house of cards. In the latest episode of the podcast, Peter and co-host Eric Eggers dig in on the Washington side of this.

First, as Peter says, “big business and big government love each other. They embrace each other. They use each other, and that certainly seems to be the case in what Sam Bankman-Fried was doing.”

Eric lays out Bankman-Fried’s political side. “Sam Bankman-Fried was the second largest donor to Democrats in this election cycle, behind only George Soros… This guy became, within 5 years the ultimate Democrat kingmaker and said he was going to potentially spend a billion dollars in the 2024 election cycle… He was welcomed and embraced by the Democrat political machine.”

Peter notes one example of that was when Bankman-Fried was summoned to testify before the House Financial Services Committee. As he was finishing, its chairwoman, rep. Maxine Waters (D-CA), was caught on video blowing him a kiss. Hindsight being 20-20, her air-kiss was likely not because of Bankman-Fried’s stellar accounting expertise, but rather his generous donations to the Democratic Party, contributing up to $40 million in the mid-term election cycle. He also gave $5 million to Joe Biden’s presidential campaign in 2020.

Bankman-Fried’s fall puts egg on the faces of many powerful people and publications. Perhaps Fortune magazine now regrets putting him on its cover in August with the tagline “The Next Warren Buffett?” Various newspapers published glowing profiles of Bankman-Fried, noting his quirky attire, Afro hair, and quoting his politically correct platitudes. As quoted by columnist Victor Davis Hanson, “His Stanford-Silicon Valley moral veneer was shiny but otherwise razor thin.”  Bankman-Fried admitted to one interviewer his trick to get suckers to send him money while avoiding federal and media oversight: “This dumb game we woke westerners play where we say all the right shibboleths and so everyone likes us.

What he was really interested in was regulatory capture.

At the Government Accountability Institute, we have learned from our years of researching how large contributions to politicians buy not only access to legislators, but also to the regulatory structure some companies need to navigate while they make money at the fringes of legality. As Peter notes, this requires regulatory capture.


“Bankman-Fried and his company were trying to write the regulatory regime for his [crypto-trading] industry. This is a similar strategy to what the big Wall Street stock trading firms did with the Dodd-Frank law after the 2008 financial crisis. That law imposed heavy regulatory requirements on financial firms, yet big firms like Goldman-Sachs and Merrill Lynch supported it, “knowing these regulatory requirements were going to squeeze out their smaller competitors. That’s what happened – a lot of the mid-size investment firms and banking firms went out of business, bought out by the big players,” Peter explained.

Bankman-Fried was hoping his massive cash infusion to the Democratic Party would allow him to influence the regulations around the crypto-trading industry. It almost worked. That is, until his own trading subsidiary, Alameda Research, run by his equally quirky girlfriend, Caroline Ellison, wound up $8-15 billion in the hole, due to a “secret agreement” Alameda had with FTX that didn’t enforce margin calls. That spelled doom for the entire enterprise, and perhaps a million investors whose funds may have vanished.

The Sam Bankman-Fried story is not a ‘crypto is bad’ story. It is a story about hubris and arrogance.