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Younger brother caught in the middle of FTX investigation

Money flowed freely into a pandemic-prevention organization run by the younger brother of Sam Bankman-Fried, the infamous cryptocurrency mogul.

More than $375,000 funded an unsuccessful campaign in Colorado to raise the tax on cannabis sales to support epidemiologic research. Another $1 million was spent on consulting and advertising expenses in the same year. and $3.3 million went to the purchase of a luxurious townhouse a few blocks from the US Capitol.

The group, Guarding Against Pandemics, raised more than $22 million in its first full year in 2021, turning it into an overnight lobbying force in Washington. The group’s founder, Gabe Bankman-Fried, a former legislative aide, began receiving the rock star treatment: two White House meetings with senior staffers and invitations to speak on panels with government officials.

But almost all of the money raised by Guarding Against Pandemics came from the brother of Gabe Bankman-Fried, who is accused by federal prosecutors of defrauding customers of his crypto exchange, FTX, of billions of dollars. The collapse of FTX prompted federal authorities to investigate allegations that widespread fraud forced the exchange into bankruptcy in November, as well as possible campaign finance law violations by the two brothers.

Federal prosecutors in Manhattan have charged Sam Bankman-Fried, 31, with orchestrating a scheme to evade limits on corporate political donations. Prosecutors say they recruited FTX executives and others to act as proxies for the crypto exchange and make hundreds of millions of dollars in illegal political donations using customers’ money.

Authorities are investigating whether Gabe Bankman-Fried, 28, and some of his associates were part of the same so-called straw donor scheme, five people familiar with the matter said on condition of anonymity. And they are trying to determine whether he knew that some of the money his organization received from customers was embezzled.

Last month, Nishad Singh, a top FTX executive, pleaded guilty to using company money to make millions of dollars in straw donations to Democratic campaigns and committees. Another executive, Ryan Salame, whose political action committee hosted a happy hour last year at Guarding Against the Pandemic’s Washington townhouse, is also under investigation over tens of millions of dollars he contributed to Republicans. .

The flood of contributions was part of an effort by Sam Bankman-Fried to portray himself as one of the few honest brokers in the independent crypto world and to gain influence with regulators and lawmakers.

It is unclear whether his brother or his brother’s organization did anything wrong in connection with this attempt. At least four political consultants who worked with Gabe Bankman-Fried have retained lawyers, and several consultants have received subpoenas against the pandemic, people briefed on the matter said.

“The brother is legally responsible for verifying where the funds came from,” said Craig Holman, a government affairs lobbyist for the progressive nonprofit Public Citizen. “But if Sam Bankman-Fried kept him completely in the dark and said, ‘It’s just coming from me,’ then it would be difficult for the brother to carry out criminal activities.”

What to know about the fallout of FTX

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What is FTX? FTX is now a bankrupt company which was one of the largest cryptocurrency exchanges in the world. This enabled customers to trade digital currencies for other digital currencies or traditional money; It also had an original cryptocurrency known as FTT. Based in the Bahamas, the company built its business on risky trading options that are not legal in the United States.

Who is Sam Bankman-Fried? He is the 30 year old founder of FTX and former CEO of FTX. Once the golden boy of the crypto industry, he was a major donor to the Democratic Party and is known for his commitment to effective altruism, a charitable movement that urges followers to give away their money in efficient and logical ways.

How did FTX’s troubles begin? Last year, the chief executive of Binance, the world’s largest crypto exchange, Changpeng Zhao sold his stake in FTX back to Mr. Bankman-Fried, receiving a number of FTT tokens in return. In November, Mr. Zhao said he would be selling the tokens and expressed concerns about the financial stability of FTX. This move, which brought down the price of FTT, spooked investors.

What Caused the Downfall of FTX? Mr. Zhao’s announcement sent the price lower and spooked investors. Traders rushed to exit FTX, leaving the company with an $8 billion shortfall. Binance, FTX’s main rival, offered a loan to rescue the company, but later pulled it out, forcing FTX to file for bankruptcy on November 11.

Michael Tremonte, an attorney for Gabe Bankman-Fried, said his client is “proud of the work she’s done in guarding against the pandemic in trying to raise awareness of an important issue” and has “always worked to make sure that The funding was reasonable.”

The relationship between the Bankman-Fried brothers has not always been easy.

After graduating from Brown University in 2017, Gabe went to work at Jane Street Capital, the Bankman-Fried Wall Street trading firm where his brother had cut his teeth. But his stay was brief and a bit awkward, partly because his brother had recently left and proceeded to recruit Jane Street staff to join a rival trading firm, said two people familiar with the matter. he said.

People said that sometimes the brothers would go away for a long time without talking much.

The work of spending FTX money on politics and philanthropy brought them together. Gabe Bankman-Fried began working on Protecting Against Pandemics in the summer of 2020, as COVID-19 was spreading across the United States. On the trip to Washington, Sam Bankman-Fried will stay at her brother’s home, said three people familiar with the arrangement.

For most of its existence, Guarding Against Pandemics was a slapdash operation, with a small staff handling huge inflows of money.

Gabe Bankman-Fried incorporated the group as a 501(c)(4) nonprofit organization in Delaware – a tax-exempt organization that is allowed to engage in certain political campaign activities and make political donations.

Under federal tax law, such a nonprofit must file a form with the Internal Revenue Service stating that it will operate as a tax-exempt entity within 60 days of creation. But Guarding Against the Pandemic didn’t file that form until February 2022, according to documents reviewed by The New York Times. And because it classified itself as a 501(c)(4), the group was not required to disclose detailed information about its donors to the public or the IRS.

Jeffrey Tenenbaum, an attorney who specializes in nonprofit law, said it was “problematic” that Guarding Against Pandemics had waited more than a year to file the required forms. The IRS can impose fines on organizations for noncompliance.

The latest tax filing submitted by Guarding Against the Pandemic to the IRS was for 2021, so it’s unclear how much money the group raised or spent last year. The 2021 filing shows $11 million in spending, including $3.5 million in grants to multiple groups.

The Bankman-Fried brothers rely on a small group of political advisors to guide their spending, applying the principles of effective philanthropy, a philanthropic movement that has a large following in the tech industry. A top adviser to both brothers was Michael Sadowski, a committed influential philanthropist who worked with the younger Mr. Bankman-Fried at the data firm Civis Analytics.

Last year, Mr. Sadowski helped launch Protect Our Future, a political action committee whose mission was similar to protecting against the pandemic. Protect Our Future also used some of the same vendors as a PAC associated with guarding against the pandemic, including Money Wheel, a Phoenix firm that provides compliance and accounting services.

With a cash infusion of $25 million from Sam Bankman-Fried, Mr. Sadowski’s PAC quickly became a force in Democratic politics. His group endorsed dozens of progressive candidates and attracted widespread attention for spending more than $11 million on an unsuccessful House primary candidate in Oregon, an astonishing amount for such a race.

The spectacular collapse of crypto exchanges in November stunned the industry.

  • Jane Street Capital: The collapse of FTX has drawn attention to the little-known Wall Street firm where Sam Bankman-Fried began his career. He was drawn there because of his interest in “effective altruism”.
  • Gaming Market?: Since FTX broke out, Mr Bankman-Fried denied allegations that he manipulated the markets to benefit his companies. Cryptocurrency investors disagree.
  • Bail Conditions: A federal judge overseeing Mr Bankman-Fried’s case has indicated a willingness to jail the disgraced executive for a frequent test of the limits of his imprisonment.
  • Legal advice: A judge allowed law firm Sullivan & Cromwell to continue advising FTX on the bankruptcy after critics complained of a potential conflict of interest between the firm and the exchange.

But Mr. Sadowski also had rough edges. Three people familiar with the matter said that co-workers privately reprimanded her for using apparently transactional language, sometimes in written communications about donations.

A recent court filing by prosecutors probing FTX said an unnamed political consultant told a company executive Mr. Singh that “you being the center left face of our spending means you’ve got a lot of Giving to” goods for purposes of transaction, adding a slur. Several former aides said they had assumed the adviser was Mr. Sadowski, and a person with knowledge of the conversation confirmed it was him.

William Farah, Mr. Sadowski’s attorney, said his client has not been accused of any wrongdoing and that he was not aware of anyone being reimbursed for making political contributions. He said Protect Our Future was advised by lawyers and a compliance firm.

Another advisor who worked closely with Gabe Bankman-Fried was Keenan Lantz, a top executive at Guarding Against Pandemics, who helped handle paperwork for political donations and other operational matters, the two people said. Said familiar. Mr. Lantz was hired to bring order and professionalism to a chaotic operation, one of the people said, and is now the group’s executive director.

Representatives for Mr. Lantz declined to comment.

Two other prominent figures in the Bankman-Freeds’ political network had ties to prominent Democrats: Jenna Narayanan, former political advisor to billionaire investor Tom Steyer, and Sean McElwee, founder of Data for Progress, a progressive think tank.

An attorney for Mr. McElwee and Ms. Narayanan declined to comment.

Guarding against the pandemic, despite its near-limitless bankroll, made some significant missteps even before FTX collapsed.

Ahead of the 2021 elections, the younger Mr. Bankman-Fried and his allies plan to fund pandemic prevention: a ballot measure in Denver that would raise taxes on retail cannabis sales to finance pandemic research at the University of Colorado Denver’s CityCenter . Pandemic Prevention raised $375,700 to support the ballot initiative.

But the motion was easily defeated. The campaign stunned University of Colorado officials, who declined to take any position on the ballot measure. And the group’s advocacy fueled intense opposition in the local marijuana industry.

“They just showed up one day,” said Truman Bradley, who runs a cannabis group in Colorado.

The collapse of FTX in November effectively ended the guarding against the pandemic that Mr. Lantz is perpetuating. Most of the group’s staff are gone, and the townhouse is up for sale.

Gabe Bankman-Fried hasn’t commented publicly, but he’s kept in touch with a small circle of friends and associates. In private conversations, he has acknowledged that he is concerned about the impact of the investigation on his parents, who are professors at Stanford Law School, according to someone close to him.

Peter Buckley, another friend, said, “He wasn’t panicking or losing his mind.” “He managed to find some gallows humor in the whole thing on at least one occasion.”

Kenneth Vogel contributed reporting. Susan Beachey and Kirsten Noyce contributed research.


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