On Background: The Political Spender America Deserves

Published Aug 15, 2023, 9:00 AM

During the 2022 election cycle, crypto mogul Sam Bankman-Fried gave as much as $40 million in political donations. That whopping sum caught the attention of campaign finance watchdogs, even before Bankman-Fried was arrested and charged with various financial crimes. Michael Lewis talks to Jordan Libowitz of the Campaign for Responsibility and Ethics in Washington (CREW) to understand the complex world of campaign finance law. And we hear why SBF, in confessing his dark-money deeds, may be a game changer. (NOTE: after this episode was recorded, federal prosecutors announced they were dropping a campaign finance charge against Bankman-Fried.)

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Pushkin. You might remember back in December twenty twenty two, right around the time crypto founder Sam Bankman Freed was arrested in the Bahamas. He was charged with various financial crimes, and we also saw a lot of headlines about his political donations, headlines with very large numbers attached to them. CBS News reported one of those stories, the crypto entrepreneur made about forty million dollars in political donations in the twenty twenty two election cycle. So why do I care about this now? I spent an awful lot of time with Sam Bankman Freed, as I reported my next book, because he sits right in the middle of it. And whatever you think about how he made his money, his eagerness to give large chunks of it away was fascinating. But the contributions to political causes and candidates is turning out to be yet another area where he's now in trouble. And all those politicians he gave money to they might have to give it back from against the rules. This is on background. I'm Michael Lewis. In order to understand the mess that Sam Bankmanfreed is in, I need to know a lot more about the world of campaign finance law that world's changed in the last decade. In twenty ten, the Supreme Court made a controversial ruling in a case called Citizens United. Basically, the ruling said the corporations and other groups can spend as much money as they want to on elections. Citizens United also spawned the creation of powerful political action committees called super PACs and so called dart money nonprofits that don't disclose their donors. It's a tangled web, and I need a guide. That's where Jordan Libowitz comes in. He's communications director for the Center for Responsibility and Ethics in Washington, a campaign finance watchdog group. When Sam Bankman Fried set up his own superpack, it was called protect Our Future. It quickly became one of the biggest political donors around, and Jordan Libowitz took notice. He's been watching Sam bagman Freed even longer than I have. When did he come on your radar screen? Like? When did you first stop paying attention to him?

So there were articles midway through the twenty twenty cycle about this new donor who no one had ever heard of, spending huge amounts of money and pledging to be one of the biggest donors in the election. Anytime someone is spending huge amounts of money, that raises our eyebrows. But crypto was still very very new to us. Then. We didn't see crypto influence building for another couple of years. But it was just here's this guy who got rich and he's spending a lot of money. You know, it's a name we recognize. It wasn't until FTX blew up that we really started paying attention to him.

Do you notice any patterns in his giving? Like I'd love to hear kind of what campaigns he specifically gave to, but more generally, were there any patterns to the campaigns he was giving to.

The first thing is that the giving was more ideological than political. These are helping pro crypto candidates or ones that could be beneficial to his business later on. The second thing is he seemed to concentrate much more in primaries. A lot of elections in this country, the general election is not particularly competitive, thanks in part to gerrymandering or to just the way states are. The actual election to decide is the primary. So when we talk about him as this massive democratic donor, most of his money was going to influence democratic primaries that we know about as opposed to helping Democrats be Republicans.

And in those primaries, what was he looking for in candidates?

So he had this idea of what the future should look like. We know that regulation and laws around cryptocurrency are coming. Who is going to be voting on that, Who's going to be casting the deciding vote, finding people who are likely to be friendly, and then supporting them in primaries to make sure they are in Congress.

You have a of how much money he poured into this.

So the pack itself was twenty something million, I think twenty three million, and then he I think he did at least another ten million on top of that. But then if he was also doing just as much through dark money, we're talking about sixty seventy million, which puts him easily in the top three, four or five biggest spenders in the country, along with who names like George Soros, Seon Adelson, the u Lines, the Kochs, those are the kind of the big families of money.

So he was playing at that level. Yes, it's kind of amazing.

What's really amazing is those other names I named decades in politics and decades in political spending. He came out of.

Nowhere, Can we just back up a minute here, talk me through all these campaign finance terms like dark money and packs. I like a little campaign finance one oh one.

So normally when you're giving to campaigns, there's a limit the FC sets the Federal Election Commission, and right now, that's thirty three hundred dollars per election. If you're giving to a candidate, more towards other organizations.

And where does that and where does that amount come from? It's kind of arbitrary. Why can't I just give anything I want?

So they set a fairly low limit, and then it's index to inflation. So there's actually a big boost for this cycle of I think four hundred dollars per election, But generally it's to limit the idea of you being able to just go out and buy an election. But then we get these decisions starting with Citizens United and Speech now versus the FFC, which essentially say book freedom of speech prohibits the government from limiting how money can be spent to influence elections and opened up corporations and unions and nonprofits to give money or to spend money, you have a put up collection committee or a pack which has a higher limit, it's five thousand dollars a year and has more regulations. Then you have what's now known as a super pack, which you can give an unlimited amount to with the two limits being that the super pack can't give that money then directly to a candidate, and it can't coordinate it spending with a candidate.

So there's still limits on direct giving by corporations and individuals directly to the campaign exactly, but there's no limit on doing whatever you want with money to help the campaign without colluding it.

Right now, it's going to get murkier. After Citizens United allowed nonprofit organizations to spend unlimited you have five oh one c four groups which are known as social wealth organizations. They're allowed to spend money on politics as long as it's not their primary purpose, so as long as it's less than fifty percent of their budget. Unlike all the political groups are just named, they don't have to actually disclose anything to the FEC. So the money coming in is a complete mystery where it's from.

And it can do it can it do everything that a super pac can do right exactly.

It doesn't have limits.

Sold Why would anybody have a superpack if they were trying to disguise what they were doing exactly.

Well, you're not supposed to be disguiseding what you're doing. All of this is done more or less with a wink and a nudge. You don't say that I'm giving you this money for the election, because that would make it a political donation, and they can't take political donations. What they can do is give money to politics. So let's say I want to help your campaign for Senate and I want to spend millions of dollars to do so. I'm going to write a check for two million dollars to a dark money group and tell them, you know this is because I support your mission, go out into what you want with it. They can then spend that two million dollars on ads that will help you. But as long as I am not saying, hey, I want you to spend this money to help him, then we're in the clear. And that's a problem.

Okay, So so since twenty ten, if I, if I billionaire, want to go try to buy a Senate seat for someone without any letting anybody know, without anybody able to see my money, give it to you dark money group with a wink and a NOD and you go and buy as much litical ads or whatever as you as you want with that, and nobody will know where your money came from. That's good, right.

The five oh one C four group needs to disclose its donors to the IRS, yep, But there's not a there's not that overlap between the I R S and the FC and.

The IRS not could disclose it publicly.

Right, And because you're just writing this check for general purposes, you're in the clear. And it gets even more of an issue in that to make a political donation, you can't be a foreign national writing a check from another country, but a dark money group can take that legally.

The Saudis could put a billion dollars into a dark money fund and without as long as they didn't tell them what to do with it, and the dark money fund can go and buy election.

So they're not supposed to spend any foreign money on elections. But could it be happening.

Absolutely, that would be that. But that would be illegal, Oh, incredibly illegal. Sure, But what's done legally is what's amazing. I mean, my two thoughts now that you've explained this to me that pop to mind is that one if this is true that I can get the same results from a dark money group as I can from a superpack with my money. The only reason I'd go with the superpack is if I wanted everybody to know that I was giving the money exactly Otherwise I would and maybe I would Maybe I'd want like the Senator who I get elected to know it was my money.

So so, but it would be it would be positively advertising the fact. But otherwise I just wouldn't do that. I would go with this, this other entity. The second thing that like this, this is this has bewildered me for a long time since the citizens in the United decision is given how easy it is to get money into politics, unlimited sums of money into politics to influence elections without anybody knowing where the money came from. It's amazing how little money there is in politics. If you'd told me in two thousand and five that these laws we're going to change, i'd a thought in a presidential election cycle, one hundred billion dollars would be spent on Senate on congressional seats in the presidential election. But it's nothing like that. Is that a weird reaction or do you do you agree with that.

The big, big cost is TV ads. There's a limit to the number of ads you can run, right, But generally the very very rich do not necessarily want to spend all their money on one election.

Right. So the limiting factor isn't the money. The limiting factor is the effect that money can have. Given that it's so easy to legally hide your campaign contributions and give unlimited sums of money to help the candidates of your choice, how is it even possible to break the law or why would anybody break the law?

Sloppiness, It's very easy to hide these things and to get away with it. You have a designated group that is run by someone you know who is going to spend the money the way you want it, and you give them the money and they do it, and your hands are clean. What you don't do is say the quiet part out loud. You don't say I am doing this and I am breaking the law.

I'm laughing, because, as we'll hear after the break, Sam bagmanfree did say the quiet part out loud, of course he did. On background. We'll be right back. I'm back with Jordan Livewitz of the Center for Responsibility and Ethics in Washington. All right, so let's talk about Sam Beckman Freed, who is among the seven hundred and forty two things he's accused of is making illegal campaign contributions. What do we know about them? I actually, even though I've been marinating in this world for eighteen months, I haven't paid that much attention to his political life. So you're probably going to educate me.

So there are actually two kinds of illegal political activity with Sam Beakmanfried. So the first one is something called contributions in the name of another. When you give money, there's one really really important rule, and that is it has to be your money. So what he is accused of knowing is taking money that just people had put in their accounts in the business.

So it's it's it's messy, and it looks like you can accuse him of of using other people's money to make campaign contributions. Does that happen? How often have you seen.

That, like taking money out of a business to do that. There's pretty much effort. This was a new one for me.

So this is a new one. But I'm just this is what about the general idea of like, I don't know, rating your grandmother's bank account and stealing it and giving you a politician. Does anybody as any has anybody ever been put in jail for taking other people's money and giving it to politicians.

So I remember there was one some years ago where basically a guy used his wife's money and tried to hide it so she wouldn't know, and he just admitted it paid a fine. There's things like that, like contribution in the name of another is sometimes you know, I'm going to give a bunch of people money to make donations, and then you know, all my family and then all your family gave maximum donations, but it was really my money to begin with. This is the opposite of that.

This is what you're saying is it's such a rare thing, and probably because people never care enough about a politician to steal money from others for them.

Yeah, It's definitely not something we see every day.

Yeah, right.

So, he in an interview talked about how while he had given thirty some odd million to Democrats, he gave pretty much the same thing through dark money donations to Republicans. To hide that he was giving Democrats and republicans, he wanted to be seen just as the Democrat guy, but he was doing these hidden dark money donations to hide that was coming from him. And the two rules again are that you can't do it explicitly tagged for the politics, and you can't do it to hide the decay from you. And he just went out and said that, yeah, I did both of those things.

So his crime is confessing it.

The crime is doing it. But yes, he would have gotten away with it hypothetically pretty easily. I mean, there's a decent chance that it could come out in the course for prosecution as we see where money went. But yeah, essentially we would have not known about this kind of thing if he did not say it to the press that he was doing it.

How often do people go to jail for campaign finance contributions, not taking campaign finance money and like using it for other purposes, But how often do donors go to jail for how they've given the money?

Very rarely. It's not something the DOJ tends to bring just on its own.

They use it to season the dish, to make yeah, just to make it look like there's more things this person did.

The prosecutions we tend to see are usually for the misuse of money after it's been given.

On background. We'll be right back. I'm back with Jordan Libowitz. We're now in this situation where people running the bankruptcy at FTX are making the case that you just made a little earlier. The money he gave away wasn't his money, it was the customer's money, and so the candidates who receive this money need to give it back. And first, have you ever seen that situation where campaign contributions get clawed back?

So claude back is something we don't see very often at all, but is a thing they's likely going to happen in this case if it is in a legal contribution and found to be one. I believe the VC rules already have thirty days to give it back or to try to get it to the original person.

So he could only give a few thousand dollars directly to the candidate, right, So the big money was, you know, in a dark money entity that the candidate theoretically had nothing to do with, that was helping the candidate without the candidate knowing how.

Or to the packs or that gave funds to packs.

But those super packs presumably can like vanish overnight and reappear as something else. I mean, those seems. It seems to me like if I had a super pac that had spent ten million dollars of Sam bankmun Freed's money and it looked like I was going to now have to give it back, I might just close the superpack.

Yeah, that is a real problem that we have. It's kind of playing whack a mole that we will find. We'll find a dark money group that has violated the law, file a complaint, and then they've already you know, spend all their money. They've shut down shop. They've said we no longer exist, we are no longer an entity, and they'll go start up another one in another state, do it again. By the time you know, we can find them, they've shut down, keep moving right.

So it seems it just seems highly unlikely to me that this money is going to come.

Back if he gave it to I know, he made major donations to the potal action committees that back Democrats in the House and Senate. Yep, those are not going anywhere. Those are not the fly by night organizations. Those are the big players. So they're going to be on the hook.

Oh that's interesting. So they they're stuck right your organization crew, Yeah, file an FEC complaint against SBF in late November. Can you explain that, like why and what response you've gotten and where it might lead.

Right, So, our complaint was about the dark money. That he said that he had given this, that he had directed it specifically for certain Bublicans, and that he did it to hide his name, which is really silly.

If he's going to go tell everyone, tell everybody that he's done it, why it doesn't really make it doesn't really scan this crime.

Right, So we're asking the FEC to investigate. We haven't really heard anything, but the FEC moves at glacial pace, so we won't for a while. They have to investigate it in their votes and they're more investigations, so it'll take a while. But basically two things can come out of it. One finds of some sort obviously will not be to the level of, you know, the money he was playing with, but also being able to see a full accounting of how much money this was and where it went. The way to fight dark money is to bring it out into the open. The whole idea is hiding it, so being able to say, hey, he actually spent this much money through these groups to help these people. It's about transparency and that's what we're working for here.

But it's not going to change the system.

No, we need Congress to change the system.

Because the system still is that the laws are still in place to if you're just more a little more clever about it, you do this and no one will ever know. It's this interesting thing about the game, sort of like what the game is now with dark money, like who or let's assume that Democrats get as smart at using it as Republicans. Okay, they're there now, so but then it may become it may become something that incumbents like more than challengers.

You know that that is the problem of having incumbents be the ones who who rate the laws, because this definitely benefits incumbents.

Right.

What we're seeing a lot of bipartisan outrage is there's been a lot of dark money campaigning around Supreme Court nominations, and for the first time, when Biden announced his pick, there was a dark money operation ready to back it, and there were a lot of outrage Republicans. Now, there was the same kind of thing on the other side a couple of years earlier, but no one really likes it when there are tens and hundreds of millions of dollars being spent against what you want. Yeah, So the hope is that, you know, we can find a happy medium where enough members of Congress are just done with this and want this influence out of politics.

Okay, how do you feel This is a very wily minded question, but how do you feel about Sam Bangmin free You've seen You've been sitting in this world of people doing kind of nefarious things with dollars in politics. Like on your outrage meter, what does he score?

Oh? I love him. I want them all to be like him and be that sloppy and that outrageous that everyone is angry at him and he just admits to things. Please more, Sam Bankman freeze less people that are running it through you know, complex webs of LLCs and five oh one c four groups and just moving the money between them in ways that it makes you know, you need a forensic anthropologist to like figure out just where the money is coming from and going to give me a guy who's like, yeah, I'm spending a bunch of money and I'm also doing some of it illegally.

He's kind of parodying the system.

Yeah, and that's because the system as it exists is fairly ridiculous. You know, he is the the he is the political spender America deserves after putting this system into place. But also because he's so outrageous, people get angry about. And that's what we need people to get angry about this kind of thing. We want and need people to be putting pressure to make change because it's not going to happen without that. And if it takes some crypto bros doing some ridiculous things to get us there, then that's what gets us there.

So Sam Begman Freed making American great again, intentionally or unintentionally, I'll thank him for you. I don't think he'd be that appreciative. Jordan Libowitz is the communications director for the Center for Responsibility and Ethics in Washington. Let's end today by answering a question from one of our listeners. Here's one from Reuven Learner. He writes, I've been a cryptocurrency skeptic for a long time, but there are, as you've said, real true believers have the FTX and other crypto collapses led anyone to abandon their belief that it's good and practical, not because they've lost their money necessarily, but because they now see how how high the hurdles are to it working. So in general, this is a funny it's a funny question. In general, I have found in my life people don't change their beliefs, that they do everything they can to avoid changing their beliefs, and especially as when they're as dug in as people are on crypto. That the crypto people are all religionists. They're different religions. There's the Bitcoin religion and the Ethereum religion and the Ripple religion and all that, and they can be at war with each other. But once they kind of have their position, you know, it's hard to change. However, I'll give you a funny exception. Several of the people who work for FTX and who were true believers when it all blew up, have decided that crypto is all bullshit, and they just they just it's like some spell was broken. And I think maybe it helps to lose all fifty million of the dollars you thought you had. But something happened in them, and it was quite noticeable. Anyway, I noticed it because I'm so used to people never changing what they believe, so there're three of them, so I know three people who've changed their beliefs. Ruven has identified yet another error of a mine, and here's what he has to say in a PostScript. Please stop saying backslash in URLs. The slash leaning to the right is a slash, but leaning left is a backslash. I know I'm pedantic, so this isn't my fault. This is the producer's fault. Yeah, I don't know what I'm talking about, but they're supposed to stop me when I don't know what I'm talking about, and they didn't do it. So we will not do that again. And it's easier to say slash. So you saved us a syllable for the rest of our lives. Thank you, Rubin on Background is hosted by me Michael Lewis and produced by Catherine Girodeau and Lydia gene Kott. Our editor is Julia Barton. Our engineer is Sarah Bruguerer. Thanks to our SVP of production read a Cone, our show is recorded by cofer Ruth at Berkeley Advanced Media Studios. Our music was composed by Matthias Bossi and John Evans of stell Wagonsymfonet. My old friend Nick Burtel composed our theme song. On background is a production of Pushkin Industries. Don't forget that we have a website atr podcast dot com in case you want to send me a question or a complaint, or anything at all. I'll read the questions, I won't read the complaints. That's atr podcast dot com. To find more Pushkin podcasts, listen on the iHeartRadio app, Apple Podcasts, or wherever you listen to podcasts, And if you'd like to listen ad free and learn about other exclusive offerings, don't forget to sign up for a Pushkin Plus subscription at pushkin dot fm, slash plus, or on our Apple show page.

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