Sam Bankman-Fried scored meeting with top regulator, tried to gain influence before collapse: emails
EXCLUSIVE – De-mails show e-mails show former kingpin Sam Bankman Fried and his now-bankrupt company FTX secured a meeting with a top regulator and tried to get them to adopt industry-friendly rules months before the stock market’s historic collapse.
In May 2022, FTX explained to the Federal Deposit Insurance Corporation why it was apparently poised to be a “superior” cryptocurrency exchange and was quickly granted a meeting with chairman Martin Gruenberg, according to emails obtained by watchdog Protect the Public’s Trust and shared with Washington Examiner.
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“It appears that Sam Bankman-Fried and his colleagues at his failed firm FTX were looking to influence crypto regulations in their favor,” said Michael Chamberlain, director of the watchdog group. Washington Examiner. “Perhaps we should consider ourselves lucky because, were it not for FTX’s precipitous collapse, the executives now facing federal charges may have been the primary drivers of government oversight of themselves and their competitors.”
FTX was on a lobbying spree to gain influence in Washington before its November 2022 collapse, which stemmed from allegedly diverting client funds to Alameda Research, a defunct company that Bankman-Fried co-founded. Bankman-Fried pleaded not guilty in January to numerous criminal charges, including wire fraud and money laundering.
On May 28, 2022, FTX’s then-policy chief Mark Wetjen, a former commissioner of the Commodity Futures Trading Commission, sent a lengthy email to Gruenberg touting the exchange’s success and requesting a meeting. The CFTC regulates derivatives and is tasked with protecting the public from fraud.
“We hope this message finds you well,” Wetjen emailed Gruenberg. “I wanted to follow up on my note from Thursday (sorry for the last minute request!) and see if you might have time the week of June 13th to meet with me and Sam Bankman-Fried, the founder and CEO of FTX, one of the largest crypto exchanges globally.”
In the email, Wetjen discussed FTX’s “risk model,” which applied to its application to the CFTC to change regulations that would pave the way for more federally authorized cryptocurrency product offerings. The application concerned bitcoin and ethereum, the two most traded coins with the highest market values.
“Sam and I have worked in traditional market structures, and I strongly believe that the FTX model is generally considered a superior model,” Wetjen continued in his email. “We are in the unusual position of asking the federal government to regulate us… We would be happy to explain these points further in person if you are receptive to a meeting. And to the extent that the crypto industry comes up in discussions through the FSOC [Financial Stability Oversight Council] or otherwise, we wanted you to have this context and our views at FTX on where the federal government should keep its focus when assessing the risks posed by the crypto industry.”
Later that evening, Gruenberg responded and accepted Wetjen’s request.
“Good to hear from you,” Gruenberg wrote. “Hope all is well with you too. Sorry for taking so long to respond to your previous email. I would like to meet with you and Mr. Bankman-Fried. If that is OK, I will ask my assistant, Diane Armstrong , to follow up with you to find a suitable day and time during the week of June 13. Enjoy the rest of your weekend.”
Wetjen wrote back about an hour later, “Thank you so much Marty.”
Julianne Breitbeil, a spokeswoman for the FDIC, confirmed opposite Washington Examiner that a “single meeting” took place.
“Chairmen of the FDIC have routine courtesy visits with leaders of financial firms and institutions,” she said.
Still, the watchdog that received the emails said the quick meeting request answered by the government shows how FTX clearly wielded considerable influence among regulators just before the exchange came under legal scrutiny. In particular, Senate Democrats sent a December 2022 letter to Gruenberg and Federal Reserve Chairman Jerome Powell raising concerns about why FTX and other firms “may have had closer ties to the banking system than previously understood.”
“While the banking system has so far been relatively unscathed by the latest crypto crash, FTX’s collapse shows that crypto may be more integrated into the banking system than regulators realize,” wrote Sens. Elizabeth Warren (D-MA) and Tina Smith (D-MN) in their letter — which asked whether agencies will investigate the relationship between banks and cryptocurrency firms.
The disclosure of the meeting between FTX and Gruenberg will follow Washington Examiner first reported in December 2022 how Bankman-Fried and his then-FTX colleagues dined and dined Dan Berkovitz, a then-CFTC commissioner, while lobbying for favorable rules. Shortly after the story was published, Berkovitz announced that he was leaving his role as general counsel for the Securities and Exchanges Commission.
Bankman-Fried also told Berkovitz in October 2021 that FTX was the natural choice to be ‘the umpires of the crypto industry’, after Berkovitz described how he noticed at an MLB game that the league had a sponsorship deal with the exchange, Washington Examiner reported. MLB terminated this agreement in November 2022.
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In August 2022, the FDIC sent a cease and desist letter to FTX instructing the exchange to stop illegally “misleading” consumers about the status of their money. The FDIC cited a July 2022 tweet by ex-FTX president Brett Harrison that claimed the FDIC insures cryptocurrency products — which the agency said were “bogus.”
“In fact, FTX US is not FDIC insured, the FDIC does not insure any brokerage accounts, and FDIC insurance does not cover stocks or cryptocurrency,” the FDIC wrote.