Crisis Managers Warn Crypto Mogul: Shut Up
“Every time he opens his mouth, he increases his civil and criminal liability,” said Niki Christoff, a Washington-based strategy consultant who previously held senior positions in political communications at Uber and Google. « It costs nothing to be quiet, but he can’t seem to do it. »
Bankman-Fried’s inability to calm down has fueled public fascination and government scrutiny around the downfall of FTX and its related businesses. As he slowly revealed that his former image as a benevolent crypto mogul was often a ruse, it made him a bigger target for prosecutors and regulators while tarnishing the wider industry, as many of his clients suffer financial loss.
“If I were to advise him right now, it would be to tell him that every moment, every second of your time, every cell of your brain should be used to make people whole,” said Sarah Feinberg, a former administration official. Obama who runs his own strategic consulting firm.
Some lawmakers — especially those who have warned that crypto poses a danger to the public — would love nothing more than to use Bankman-Fried as a pinata.
« I’m always happy to hear from all the people who have tried to destroy our economy, » the senator said. Elizabeth Warren (D-Mass.) told reporters earlier this month.
President of the Chamber of Financial Services Maxine Waters (D-Calif.) could invite the disgraced former billionaire to testify at a public hearing next month as part of an investigation into how his Bahamas-based crypto exchange FTX went bankrupt. His panel is holding the first in a series of hearings into FTX’s disappearance on December 13.
Waters has yet to release a list of witnesses for the hearing, but said Nov. 16 that she expected to hear from Bankman-Fried as well as FTX and its affiliate investment firm Alameda Research. Bankman-Fried resigned from FTX when it filed for bankruptcy on November 11.
The sudden and dramatic collapse of FTX cost exchange clients billions of dollars in losses and sent crypto prices plummeting.
FTX’s new CEO, John Ray III, a corporate restructuring veteran who also helped wind up Enron, alleged in bankruptcy filings that FTX suffered from rampant internal failures that allowed Bankman-Fried and members of his entourage to misuse company resources.
If Bankman-Fried shows up for the House hearing, any missteps could provide fodder for authorities looking to sink their teeth into the case. The SEC and the Justice Department surround FTX and Bankman-Fried for possibly violating marketplace and consumer protection laws.
He’s already brushed off potential investigators, with a Vox reporter publishing a conversation in November in which Bankman-Fried said « fuck regulators. »
Christoff said testifying before Congress « will create a sworn record that prosecutors can refer to when Sam is inevitably charged with fraud. » Bankman-Fried and FTX did not respond to requests for comment on this story.
Bankman-Fried also poses a conundrum for lawmakers. With his recent statements called « erratic and misleading » by FTX’s new CEO, there is a risk that he could misrepresent or confuse in a hearing.
« I do not expect Sam Bankman-Fried to testify before Congress in light of some of the allegations of criminal activity and fraud, » the senator said. Cynthia Lummis (R-Wyo.), one of the biggest crypto industry champions on the Hill, told reporters earlier this month. « I think those discussions will take place more at the investigative and regulatory level. »
Disgraced executives typically try to avoid testimonies on Capitol Hill. One exception is former New Jersey Governor and U.S. Senator Jon Corzine, who testified in hearings about the 2011 failure of his brokerage firm MF Global. The collapse of MF Global rocked Wall Street as it recovered from the 2008 financial crisis and sparked investigations after customers’ money disappeared.
Corzine – a former senior Goldman Sachs executive – then paid $5 million to resolve regulatory charges related to MF Global’s misuse of nearly $1 billion in client funds. He avoided criminal penalties.
Rather than following in Corzine’s footsteps, PR experts say Bankman-Fried should focus on beleaguered FTX clients.
« Unless this House committee gives you a check to the people you defrauded, » Feinberg said, « that’s probably not what you should be spending your time doing. »