What does Congress do with a problem like Sam Bankman-Fried?

The spectacular collapse of Sam Bankman Fried‘s empire was both a shock to the cryptocurrency markets and a personal surprise to those in the halls of power. For years, SBF, as it is known, had established itself as arguably the most important lobbyist for the blockchain world; He was a friendly, helpful face guiding lawmakers through a mysterious new industry. He delighted crypto-curious senators and lawmakers, donated millions to political candidates, and helped shape policy. Then it all collapsed, forcing Washington to reckon: Had this 30-year-old financial prodigy played them? Was it all a house of cards?

“I was impressed by him. He always struck me as a very smart, dedicated guy who seemed to want some sort of constructive legislation and regulatory framework,” the Republican senator said Pat Toomey says. “I was shocked when I found out what happened.”

Toomey is one of several lawmakers pushing a crypto bill that SBF was involved with. That was once an advantage, a sign of diligence and closeness to the industry. Now that Bankman-Fried’s disregard for the oversight has been exposed, his fingerprints are more of a liability. He has admitted to borrowing billions of his clients’ funds to another company he owns, Alameda Research. The Justice Department, Securities and Exchange Commission and Commodity Futures Trading Commission are reportedly investigating FTX.

Through Twitter DMs, Bankman-Fried told a Vox journalist on Tuesday that his drive for regulation was “just PR” and that his stated interest in effective altruism was to build his reputation. “Fuck regulators,” he wrote. “They make everything worse.” In another message on ethics, he said he felt bad for “those who get fucked up by … that stupid game we westerners woke up to play where we say the right shiboleths and we each like”. (He later attempted to clean up these comments via a series of tweets, saying he was “vent” and the Regulators have a tough job.)

Among others who appeared to side with him: Democratic Senator Kirsten Gillibrand, republican Cynthia Lummis, Chairman of the Financial Services Committee of the House of Representatives maxine waters, who he was reportedly holding when House Democrats pulled out last March. Now, Waters’ committee says it will hold a hearing on the FTX collapse in December and has made clear it expects Bankman-Fried to testify.

The collapse has plunged the crypto politics scene into a state of chaos. Depending on who you speak to, the FTX fiasco is either proof that crypto regulatory laws need to be passed now, or proof that those laws are too weak and need to be defeated. Politicians proposing crypto regulations downplay SBF’s involvement. “We have consulted with all stakeholders, the CFTC, the SEC, the Treasury, all stakeholders. Including Sam,” says the Democratic senator Debbie Stabenow, one of the co-authors of a bipartisan crypto bill. Gillibrand, which has a separate bill with Lummis, says it would be “the most irresponsible action” to delay proposed regulation now. In the meantime, Senator Elizabeth Waren says the proposals are too industry-driven to be acceptable — including those proposed by her Democratic peers: “We need much stricter legislation than has been proposed,” she says.

In a way, it’s a typical political battle, with politicians fighting over whose bill will make it onto the president’s desk. What makes this debate awkward, however, is that key political players all know personally the man at the center of arguably the biggest scandal in crypto history. SBF has hosted meetings with members of both parties, donated millions to political candidates (some of whom now want to donate to charity or give back to FTX’s customers), appeared at Democratic Party strategy meetings, and even reportedly visited the White House. When a politician pushes crypto legislation, the issue isn’t whether they’ve encountered it, but how many times.

This involvement has fostered distrust among already crypto skeptics. Their theory is that SBF was pushing for a lightly regulated system in order for the industry to gain credibility and thus the trust of banks and other large institutional investors. In other words, it was a step towards the mainstream. Some politicians are opposed to taking this path. Arguably the most important of these is the chairman of the Senate Banking Committee Sherrod Brown, whose committee would oversee each such proposal.

However, the industry still has its champions in Congress, and there’s a huge divide between Democrats, who want regulators to crack down, and Republicans, who say government intervention will stifle innovation. Toomey, for example, characterizes the collapse of FTX as a story about one person’s wrongdoing, not a broad warning against investing in cryptocurrencies.

Until a plan emerges that can gain broader support, the current Wild West environment appears to be here to stay. Senate Democrats had their first full meeting Tuesday since the collapse of FTX. Gillibrand says none of her colleagues raised it.

“There’s not a lot of expertise or interest in blockchain and digital currencies and digital tokens,” she says. “And so there aren’t many senators following what’s happening.”

Still, the news wasn’t lost on everyone: Senator richard shelby, The 88-year-old Alabama senator, who blocked a bipartisan attempt to regulate crypto last year, smiled when asked if he was surprised by the FTX crash.

“It’s not surprising to some of us,” he says. “There’s a lot of hope out there and maybe not as much substance.”

https://www.vanityfair.com/news/2022/11/congress-sam-bankman-fried-regulation-crypto-ftx What does Congress do with a problem like Sam Bankman-Fried?

Charles Jones

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