Dems antsy as disgraced crypto chief who supplied campaign cash readies Capitol Hill testimony

The expected testimony of cryptocurrency pariah Sam Bankman-Fried before the House Financial Services Committee on Tuesday is shaping up to be an awkward moment for committee Democrats whose campaigns he bankrolled.

Chairwoman Maxine Waters, California Democrat, said she wants to investigate the collapse of FTX, the defunct multibillion-dollar cryptocurrency exchange founded by Mr. Bankman-Fried that critics have compared to a Ponzi scheme. She said she doesn’t want “to get into” his political donations, of which $300,351 went to nine members of the committee, seven of them Democrats.

Ms. Waters has been cozy with the disgraced entrepreneur. She posed for a photo with him in April that was apparently taken at a Bahamas conference hosted by FTX. The lawmaker’s husband is a former U.S. ambassador to the Bahamas, and the couple have reportedly stayed at the home of Allyson Maynard-Gibson, a Bahamian politician who worked as an attorney for FTX and whose daughter was an executive at the company.

At a committee hearing last year, Ms. Waters fueled considerable debate on social media about whether the kiss she blew was directed at Mr. Bankman-Fried or at Ms. Maynard-Gibson, who was seated behind him in the hearing room.

Since FTX declared bankruptcy and wiped out billions of dollars of investors’ money, Ms. Waters has been taking a polite but persistent stance toward Mr. Bankman-Fried. She urged him in a strange Twitter exchange last week to testify and tried to refute “lies” that she wasn’t willing to subpoena him.

“The collapse of FTX has harmed over one million people,” Ms. Waters told him. “Your testimony would not only be meaningful to Members of Congress, but is also critical to the American people.”

Mr. Bankman-Fried’s donations to members of the Financial Services Committee have raised concerns that the lawmakers will not try to hold him accountable. Rep. Jesus “Chuy” Garcia, Illinois Democrat, is the only committee member who said he would return a contribution — $2,900 — from the fallen cryptocurrency king.

Mr. Bankman-Fried’s political action committee, Protect Our Future PAC, spent another $199,851 on ads supporting Mr. Garcia, who serves on the committee’s digital assets working group.

Federal Election Commission records show that four other Democrats on the digital assets working group received donations from Mr. Bankman-Fried and his associates: Reps. Ritchie Torres of New York ($40,300), Josh Gottheimer of New Jersey ($16,600), Sean Casten of Illinois ($9,100) and Jim Himes of Connecticut ($500).

Mr. Bankman-Fried also donated $11,600 to committee member Rep. Jake Auchincloss, Massachusetts Democrat.

In the previous election cycle, Mr. Bankman-Fried spent about $37 million, almost all of which went to supporting Democratic candidates and causes. He was the Democratic Party’s second-largest donor.

The new CEO of FTX, John J. Ray III, will tell the committee on Tuesday that FTX customer assets were commingled with assets from the Alameda trading platform, another company operated by Mr. Bankman-Fried. He will also testify that “loans and other payments were made to insiders in excess of $1 billion,” according to his prepared testimony released by the committee.

“The FTX Group’s collapse appears to stem from the absolute concentration of control in the hands of a very small group of grossly inexperienced and unsophisticated individuals who failed to implement virtually any of the systems or controls that are necessary for a company that is entrusted with other people’s money or assets,” Mr. Ray will say.

He also will testify that FTX Group “went on a spending binge in late 2021 through 2022, during which approximately $5 billion was spent buying a myriad of businesses and investments, many of which may be worth only a fraction of what was paid for them.”

Some observers say the hearing will be more about giving lawmakers, who are accused of enabling Mr. Bankman-Fried’s suspected fraud, a chance to scold him and posture for TV cameras.

“This should be interesting,” tweeted L. Tom Block, a Washington policy strategist for the global financial consulting firm Fundstrat and a former congressional staffer. “From my Hill staff days, the goal of the hearing is not so much to get the truth but to make sure your boss gets their question on the news.”

The head of cryptocurrency exchange Coinbase, Brian Armstrong, criticized Ms. Waters for saying she would “welcome” Mr. Bankman-Fried’s testimony.

“I mean, this guy just committed a $10 billion fraud, and why is he getting treated with kid gloves?” Mr. Armstrong told the technology newsletter Stratechery. “Compare her tweets about Mark Zuckerberg, for instance, who never stole $10 billion from people, whatever you think about the guy. … This tweet back and forth with Maxine Waters very politely asking him to attend a hearing, and him politely deferring, it was bizarre.”

He blamed mainstream media for being too soft on Mr. Bankman-Fried. The New York Times, Bloomberg and others have been called out for favorable coverage.

“It’s been pretty bizarre to kind of watch the whole thing unfold, primarily because I do feel like mainstream media has given a lot of softball interviews,” Mr. Armstrong said.

In addition, Mr. Bankman-Fried’s company secretly funded a media company called The Block, which says it covers cryptocurrency news independently, Axios reported Friday. The report said the money was used in part to finance the purchase of an apartment in the Bahamas for The Block CEO Michael McCaffrey, who is leaving the company.

Mr. Bankman-Fried has been warning Ms. Waters not to expect much from his testimony if he does appear.

“I still do not have access to much of my data — professional or personal,” he told Ms. Waters. “So there is a limit to what I will be able to say, and I won’t be as helpful as I’d like. But as the committee still thinks it would be useful, I am willing to testify.”

The Justice Department and the Securities and Exchange Commission are believed to be investigating Mr. Bankman-Fried for suspected misuse of customer funds. He has not been charged but is widely believed to have commingled investors’ funds among three of his companies.

In recent interviews, Mr. Bankman-Fried said he was largely ignorant of how the money was lost.

His testimony will likely be chilled by the prospect of criminal charges. Mr. Bankman-Fried has retained white-collar defense lawyer Mark S. Cohen, who recently defended Ghislaine Maxwell in her sex trafficking trial.

He told Ms. Waters that he “will try to be helpful during the hearing, and to shed what light I can on: FTX US’s solvency and American customers, Pathways that could return value to users internationally, What I think led to the crash [and] My own failings.”