Sam Bankman-Fried scored meeting with top regulator, tried to win influence before collapse: Emails

Gabe Kaminsky

March 19, 05:00 AM March 19, 05:00 AM

EXCLUSIVE — Disgraced ex-cryptocurrency kingpin Sam Bankman Fried and his since-bankrupt company FTX scored a meeting with a top regulator and sought to sway them to adopt industry-friendly rules months before the exchange's historic collapse, emails show.

In May 2022, FTX pitched the Federal Deposit Insurance Corporation on why it was apparently poised to be a "superior" cryptocurrency exchange and was swiftly granted a meeting with its chairman, Martin Gruenberg, according to emails obtained by the watchdog Protect the Public's Trust and shared with the Washington Examiner.

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“It seems that Sam Bankman-Fried and his colleagues at his failed firm FTX were looking to influence crypto regulations to their advantage," Michael Chamberlain, director of the watchdog group, told the Washington Examiner. "Perhaps we should consider ourselves fortunate because, were it not for FTX’s precipitous collapse, the executives now facing federal indictments 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 was due to it allegedly diverting customer funds to Alameda Research, a defunct-company Bankman-Fried co-founded. Bankman-Fried plead not guilty in January to a slew of criminal charges, including wire fraud and money laundering.

On May 28, 2022, FTX's-then policy head Mark Wetjen, a former commissioner of the Commodity Futures Trading Commission, sent a lengthy email to Gruenberg that touted the exchange's success and requested 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 13 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 pertained to its application pending before the CFTC to amend regulations that would pave the way for more federally authorized cryptocurrency product offerings. The application pertained to bitcoin and ethereum, the two most widely traded coins that maintain the highest market caps.

"Sam and I have worked in traditional market structures, and I strongly believe the FTX model is all things considered a superior model," Wetjen continued in his email. "We are in the unusual position of begging the federal government to regulate us. ... We would be thrilled to explain these points further in person if you are amenable to a meeting. And to the extent the crypto industry comes up in discussions through FSOC [Financial Stability Oversight Council] or otherwise, we wanted you to have this context and our views at FTX about where the federal government should keep its focus as it considers the risks posed by the crypto industry."

Later that evening, Gruenberg replied and accepted Wetjen's request.

"Good to hear from you," Gruenberg wrote. "Hope all is well with you too. Sorry to take so long to respond to your previous email. I'd be glad to meet with you and Mr. Bankman-Fried. If it's OK, I'll ask my assistant, Diane Armstrong, to follow up with you to find a convenient day and time during the week of June 13. Enjoy the rest of the weekend."

Wetjen wrote back roughly one hour later, "Thanks very much Marty."

Julianne Breitbeil, a spokeswoman for the FDIC, confirmed to the 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 obtained the emails said the swift meeting request being answered by the government shows how FTX evidently exerted major sway among regulators just before the exchange came under legal scrutiny. Senate Democrats notably sent a December 2022 letter to Gruenberg and Federal Reserve Chairman Jerome Powell that raised concerns over 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 are aware," wrote Sens. Elizabeth Warren (D-MA) and Tina Smith (D-MN) in their letter — which asked whether agencies will investigate the relationships between banks and cryptocurrency firms.

The revelation of the meeting between FTX and Gruenberg comes after the Washington Examiner first reported in December 2022 on how Bankman-Fried and his then-FTX colleagues wined and dined Dan Berkovitz, a then-CFTC commissioner, while lobbying for favorable regulations. Shortly after that story was published, Berkovitz announced he was departing from 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 agreement with the exchange, the Washington Examiner reported. The MLB ended that agreement in November 2022.

In August 2022, the FDIC sent a cease and desist letter to FTX that instructed the exchange to stop illegally "misleading" consumers about the status of their funds. The FDIC cited a July 2022 tweet by ex-FTX President Brett Harrison that claimed the FDIC insures cryptocurrency products — which the agency said was "false."

"In fact, FTX U.S. is not FDIC-insured, the FDIC does not insure any brokerage accounts, and FDIC insurance does not cover stocks or cryptocurrency," wrote the FDIC.

SVB collapse: House to hold first hearing on SVB as lawmakers remain split on response

Cami Mondeaux

March 18, 08:36 AM March 18, 08:36 AM

The House is set to hold its first hearing on the collapse of Silicon Valley Bank, marking a significant step toward addressing the financial crisis while lawmakers remain split on how to avoid similar incidents in the future.

The House Committee on Financial Services will hold a hearing on March 29 to question federal financial regulators on their response to the bank collapse, lawmakers announced on Friday. The hearing is expected to be the first of several as lawmakers seek to determine the cause of the banking failures and consider measures to prevent future shortcomings.

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"We are working around the clock to deliver answers to the American people in order to protect depositors, promote the safety and soundness of America’s banks, and strengthen our financial system," Reps. Maxine Waters (D-CA) and Patrick McHenry (R-NC), the top two lawmakers on the committee, wrote in a joint statement. “We will conduct this hearing without fear or favor to get the answers the American people deserve.”

The hearing will feature two witnesses, including Martin Gruenberg, chairman of the board of directors at the Federal Deposit Insurance Corporation, and Michael Barr, the vice chairman for supervision of the board of supervisors at the Federal Reserve. More witnesses could be called to testify before the hearing takes place.

Lawmakers have already begun pressing for answers on the banking failures, with senators on the Finance Committee questioning Treasury Secretary Janet Yellen on the matter during a separate hearing on her department’s proposed budget for 2024.

Additionally, Sen. Sherrod Brown (D-OH) sent a letter to the Treasury, the Fed, and the FDIC on Thursday, urging the government agencies to conduct a comprehensive review of the bank’s collapse that led to a strain on the nation’s financial system. As part of that request, Brown pressed the agency to implement stronger banking regulations “to prevent failures and mitigate contagion.”

The hearing comes as lawmakers on both sides of the aisle seek to address the collapse of SVB and Signature Bank, which prompted a frenzy and strain on the national stock market late last week.

Sen. Elizabeth Warren (D-MA) introduced legislation on Tuesday that would abolish Title IV of the Economic Growth, Regulatory Relief, and Consumer Protection Act and restore certain provisions used to overhaul the U.S. financial system in the aftermath of the 2008 recession.

Warren’s legislation specifically targets a Title IV provision that raised the asset threshold to $250 billion for banks to be regulated as “systemically important.” That rollback, Warren argued, led to the deregulation and subsequent collapse of SVB and Signature Bank, prompting the frenzy and strain on the stock market.

The bill has ignited some disagreement among Senate Democrats as the party members can’t agree on whether they want to repeal the 2018 legislation altogether or pass stronger regulations. Republicans, on the other hand, have rejected the idea.

Senate Minority Whip John Thune (R-SD) dismissed any talks of legislation as being “premature," especially before lawmakers understand the causes behind the collapse.

Both SVB and Signature Bank collapsed late last week, prompting major federal intervention to backstop uninsured deposits in a bid to halt panic.

The collapse came after SVB announced on March 8 that it had sold $21 billion in bonds, cementing $1.8 billion in previously unrealized losses. That announcement sparked a frenzy among venture capital firms, which reportedly began advising clients to pull their money from Silicon Valley Bank — causing its stock to be thrust into a free fall.