Political Donations May Be Why Crypto CEO Is Not in Custody: Rep. Warren Davidson

Those donations may explain why SBF is not in custody somewhere. Normally you would see somebody arrested pretty quickly with this kind of fact pattern. So the question is, why hasn't Sam been detained by American authorities? We had a very assertive FBI doing all kinds of things to American citizens for things that most people say are nowhere near as serious. And so the treatment looks like it's a two-tiered justice system to a lot of people. With the close collaboration that's been going on with FTX and the Securities and Exchange Commission, people are saying, how could the SEC be doing all that and not know? They should definitely have been able to look at their balance sheet. It's hard to believe at this point somebody doesn't go to jail and we need to look at a major overhaul of the Securities and Exchange Commission. Good evening. Welcome to NTD's Fresh Look America. I'm Paul Graney. Today we're joined by Congressman Warren Davidson representing Ohio's 8th District. Davidson sits in the House Financial Services Committee. He's also the founder of the Sound Money Caucus. Congressman, it's always good to see you. Thanks for coming on. Yeah, always an honor. Thank you. Oh, and congratulations on securing another two years. Yeah, it's definitely an honor. Thanks to the good people of Southwest Ohio for giving me another shot. Congressman, let's start with FTX, the bankrupt crypto exchange. I know you're familiar with this space. We see the founder, Sam Bankman Freed, is heavily aligned with Democrats, it seems. How do you see this situation and how do you see it playing out? Well, I think the political donations are an interesting side story. I mean, he's given to, you know, overwhelmingly to Democrats. He's given to some Republicans. But frankly, some of the other people in FTX have given to Republicans primarily. So when you look at what's going on with FTX, I think the bigger story is why is this happening? And, you know, one narrative is for sure, this looks like fraud. I mean, if you saw the Wall Street Journal article from the acting CEO, came in after having restructured Enron and a whole career of bankruptcy restructuring, saying, I've never seen anything this bad. It's, you know, just unbelievable, the lack of controls, poor governance, backdoors created in software to bypass accounting controls. Those look a lot like the narrative of fraud. And, you know, normally you would see somebody arrested pretty quickly with this kind of fact pattern. So, you know, the question is, why hasn't Sam been detained by American authorities? And of course, he was initially in the Bahamas. Last I heard, that's where he was. And that's where FTX International is headquartered. So this whole thing started unwinding with the international piece. And of course, he had tweeted about FTX US being firewalled and safe. And obviously that turned out not to be the case. So a lot of people are getting hurt badly by this. And, you know, fraud is hard to detect upfront. But with the close collaboration that's been going on with FTX and the Securities and Exchange Commission, people are saying, how could the SEC be doing all that and not know? And so, you know, I think this is going to be a really interesting thing. The Financial Services Committee has announced that we're going to do a hearing in December. So I look forward to that hearing. On this collaboration, as you mentioned, I wonder, have you spoken with Minnesota Rep Tom Emmer? He said that the SEC chair was perhaps coordinating with FTX to, quote, obtain regulatory monopoly. Have you spoken with Mr. Emmer about this? Yeah, Tom Emmer and I sit on the committee together. He was just recently elected to be the whip. So he'll be the person in charge of rounding up the votes in our narrow majority as we take over the House January 3rd. But, you know, he's been real active in the same space. And, you know, I think he and I see the potential for this. I haven't said definitely Gary Gensler has done this. But it seems to say, look, Gensler and, you know, SBF have MIT ties and some other relationship ties. But fundamentally, Gary Gensler and Jay Clayton had the same kind of narrative. If you want to do anything in the crypto space in the U.S., you need to come into the SEC and work out a deal. Well, FTX has been working with regulators at the SEC and the CFTC, the Commodity Futures Trading Commission, to try to get some sort of regulatory framework for exchanges in the U.S. And, you know, presumably they've shared a lot of data about how these trades are done, what they're trading on their platform. FTX had a Series C funding round in January. And, you know, a lot of companies took a pass and some companies put big investments into FTX just as recently as last January, January of 2022. And if you look at the market, crypto in general has trended down since then. So some people are speculating, you know, the biggest players got a look at the books in this Series C funding and said, wow, I want nothing to do this. And the market started tanking and others, you know, counted on it actually working out. Obviously, it hasn't worked out. I believe it's not just big investors. In Canada, we have the Ontario Teachers Pension Fund lost hundreds of billions of dollars. What they were doing investing in FTX, I'm not sure, but that's what they've done. I believe as well, the CFTC had some former members of the CFTC were sitting on the board of FTX as well, which is incredible. Is it possible, Congressman, to sit on a board of a company and not know that this level of malfeasance and fraud was happening? Can you explain this to us? Yeah, I think at face value, it is, you know, we're just as incredulous as the average American. How could this level of governance attract this kind of funding? You know, as members of Congress, we're not doing due diligence to make investments into these companies generally. You know, we're trying to regulate the space. And if you go back to since 2018, Darren Soto, a Democrat from Orlando, and I have had a bill, the Token Taxonomy Act, that deals with the root issue here, which is what is a security and what is not. And part of what's happened here is they've existed in this space that's somewhere between the Securities and Exchange Commission and the Commodity Futures Trading Commission. No one's really taken ownership over really being the regulator here. So in a way, it's kind of designed to be able to be one of these point, this way, you know, they were supposed to, we thought, and in the absence of regulatory clarity in America, why is FTX International based in the Bahamas? Because Bahamas passed a set of laws to provide, you know, legal clarity for this space. So FTX International headquartered in the Bahamas. If we had regulatory clarity in the United States, you know, you would like to think that a lot of the liquidity that is offshore would actually be in our markets. Are you saying, Congressman, back to your point on the SEC and the CFTC, that perhaps, or what you would like to know is, was there some cooperation or coordination to, why would the SEC and the CFTC work with a company like FTX in general? Well, so if you go back, you know, I don't know, six months ago or so, Tom Emmer and I led a letter. We had, you know, four Republicans, four Democrats, and basically sent a note to the Securities and Exchange Commission. You're engaging in endless discovery with these companies. Whether it's Coinbase or FTX or any number of other companies in the space, they've come to us saying, yeah, the SEC's basically got staff camped out. They look at every single thing that we do. All of our trades, all of our deals, all the tokens that we're trading, why we're trading them, how do we do, know your customer, all the things that you would think, they're like, they're in our shorts every day, but they never provide a way out. They just keep doing discovery, discovery, discovery. And you're like, so we sent that letter, and frankly, the SEC shot back and, you know, basically accused us of being the blockchain aid, of somehow supporting the industry and interfering with their ability to regulate. And no, we're just saying you should provide the clarity. They never have provided the bright line clarity so that the investors and the innovators know where the boundaries are. And frankly, so do the regulators. But this is also on Congress. As I say, you know, we've tried to get a bill since 2018 to provide this. We've never even had notice on any of the bills. We haven't marked up a bill and we haven't moved a bill. You know, so in the House, you know, we've worked in our committee, in the Senate, Senator Lummis and others have worked on their Senate Banking Committee to try to provide clarity. And the industry just desperately needs this. And, you know, unfortunately, the tendency when you have something bad like this happen is to overreact. And we don't want to kill this market. What we do want to find is a way to flush out the bad actors. The good actors have been pleading for regulation so that you can see. I mean, some of these things are clearly pump and dump scams. And I had this line of questioning with the, you know, the, you know, my, I guess, assistant vice, somebody for regulation at the SEC, Grawal, in July. And it's like, do you guys give selective enforcement? He said, no. Well, at this point, it's hard to believe that they haven't been engaged in selective enforcement. I'd like to note as well, I believe it was what a year ago, Congress, when we spoke about this particular issue of fraud in crypto. And although you are a proponent of digital currencies, Bitcoin and decentralized currencies, you did say we need to get rid of the fraud in crypto. We need to flush out the bad actors. I think that was about a year ago. On the point about discovery, if the SEC was looking at these companies so deeply, should they have known about the books? Would they have been looking at their accounts, their balance sheets, or not necessarily? They should definitely have been able to look at their balance sheet. And even when you look at the filings with the SEC, where some of these things wouldn't necessarily be public, the SEC wouldn't be privy to some of the filings. So, you know, there are questions about when you're raising capital, do you just file the paperwork? Surely the SEC is doing more than just collecting documents. They're supposed to provide some scrutiny, even in private placement memorandums, right? So, you know, FTX hasn't been publicly traded, isn't publicly listed. So there is a different level of scrutiny there. But the kind of due diligence that went on, you know, from some of the people that invested and some of the people that have served as regulators is definitely going to be front and center in our hearing in December. But if you go back to last December, we had a hearing in Congress. We had CEOs of some of the biggest firms, including Sam Bankman Freed. And I asked him, like, Sam, you, well, you know, I said, you have this rule that you just put in to limit leverage to 20x, 20 times leverage. And I'm like, this seems crazy that, you know, it seems like there would be rational that you would have leverage limits, but 20? And he goes, well, prior to that, it was way higher. And so we did that to rein it in. And I'm like, holy cow, that seems pretty reckless. And well, the average leverage is only like two point something. Well, OK, because most people don't trade on margin accounts. But the idea that they were doing that kind of leverage in their business was sending shockwaves this time last year. And so I think people started to see, you know, some things unwind. And right after that Series C funding, you started seeing everything affiliated with it, whether it's FTX US, FTX International, Alameda, Sam Bankman Freed, making investments into virtually everything in the industry. And, you know, now we suspect we know why. A couple of points. Obviously, the leverage is FTX. We're allowing people to basically borrow money and gamble on the price of cryptocurrency up to 20 times their initial investment, up to 100 times what it previously was. Sam Bankman Freed thought that was a little too much. Let's bring it back to 20 times. And of course, you can lose 20 times your money if you don't really know. And like you mentioned, the price of crypto just fell through the floor, never mind FTX doing all this in the background, which is just a massive. What are we talking about here, Congressman, in the billions of dollars that users and investors are going to have lost? Could it be over 10 billion? Yeah, it's definitely in that range. And you have just overt fraud. I mean, I think in some of the kind of post meltdown tweets, he tried to say, oh, well, this is a mark to market issue because the bottom started falling out. And, you know, people are pointing out like, no, there are assets that were on the books of FTX that say they had tokens that never even had a market cap of the listed value on their books as they're digging into the bankruptcy filing. So it's hard to believe at this point somebody doesn't go to jail. And, you know, probably, you know, more than one person to pull off something at this scale. So I think this is something that's going to be a story for a long time. And, you know, I just hope that, you know, if you look at Elizabeth Warren's reactions, she's always been hostile to the entire space. So she's worked to prevent regulatory clarity for years. And now she's looking to provide regulatory destruction for the part that's left of the industry. And I hope that we don't go down that path. If you look at why is all this fintech flourishing in America, we're still living on fumes from getting the internet era right and providing regulatory clarity, like, hey, if you do these things, then you will be, you know, in a basically less regulated environment. You can innovate, make your investments in America. And now America is home to, you know, tech. Not to say there's none everywhere else, but definitely the talent pool is dominated by the United States. And so as these talented people look at fintech and develop innovative ideas, we should be able to make that happen here. And precisely for this reason, our regulators ought to be able to look into the books and prevent meltdowns like this from happening because they do have a clear regulatory framework and they do have a clear owner of the duty to provide regulatory oversight for the companies and products in the space. But you can't make that, you know, regulatory framework, you know, crippling. You just need to make it effective. But I think it's worth pointing out here, a fraud or a problem of this magnitude and scale, if the SEC were already looking and like we talked about, they should have spotted something. Like what's the added advantage of more regulation? That's one point. Are you planning, Congressman, to have perhaps Gary Gensler and other people from the CFTC, for example, if you're bringing them to the hearings, what are you going to ask them? What are you going to try and find out from them? Well, exactly. What did they know? Who knew it? You know, how long have they known it? What were they doing about it? And, you know, at some level, you know, we expect that they'll try to say, well, you know, it's an ongoing case. We can't comment. And that's usually the way they stonewall Congress. But we need to be able to do our jobs too and provide, you know, the regulatory fix here. I mean, my fear is that what we're seeing is not just that Gary Gensler isn't up to the task and who knows whether he's conflicted personally or not at this point, but the SEC isn't up to the task. Hester Persa, a commissioner at the SEC, has been calling out the problems with the SEC for years. And this predates Gensler. This was when Clayton was there. And it may just be that the SEC framework really needs updated. It's not up to the current environment that we're in. And we need to look at a major overhaul of the Securities and Exchange Commission. I think the timing of this has been important and interesting to note as well. It was right after the midterm elections. We know that Sam Bankman Freed, the founder of the FTX, was the Democrats' second largest donor. Now, like you mentioned, he did donate to some Republicans, perhaps Lisa Murkowski, Mr. Spencer, I believe Mitt Romney, Republicans like this. But the majority of the money went to Democrats. Are we perhaps obliged to ask the question that the SEC was facilitating FTX doing this for a certain amount of period, turning the other cheek or burying their head in the sand to facilitate these donations going to the Democrats in the run up to the midterms? Is this a legitimate question or is this too circumstantial at the moment? Well, look, I think that those donations may explain why SPF is not in custody somewhere. I don't know. I'd like to think that's not an explanation, but I think people are always going to suspect it unless he's actually in custody because people think that normally, gosh, if you bounced $10,000 worth of checks, you'd probably get a visit. You crashed $10 billion worth of other people's money. It seems like somebody would be visiting you. We had a very assertive FBI doing all kinds of things to American citizens for things that most people say are nowhere near as serious. And so the treatment looks like it's a two-tiered justice system to a lot of people. And so I think that's a real problem. But I think the broader issue isn't the campaign donations. The broader issue isn't the way that Ukraine invested some of the money, apparently, that the United States and others around the world did in crypto and used FTX as part of the platform for that. That's something that we should get scrutiny on. The bigger issue with Ukraine isn't just FTX. It's that we don't have an inspector general overseeing the tens of billions of dollars the American people have given to Ukraine. So we tried, Republicans tried to offer that amendment and weren't able to even offer the amendment with the bills that Democrats put on the floor in the House and Senate. So the idea that we couldn't get that done should tell you something's up. Why wouldn't you want an inspector general overseeing tens of billions of dollars going to any country, but certainly a country with the record of historical corruption that Ukraine has had? Well, this is a great segue for us, I think, when Republicans have taken over the House. You mentioned a couple of things I want to ask you about. Let's start with Ukraine. I spoke with a guy from that part of the world recently, and I said to him, oh, you know, America, he actually put Ukraine's success in the war solely down to the weapons that America has given Ukraine. He said that's the only reason America has flooded Ukraine with weapons. I said, oh, they're giving more money. They're giving more money. He said, they're not giving money. He said they're giving weapons. He said the money is going to the weapons manufacturers in America, and they're sending the weapons to Ukraine. He said they would never send money to Ukraine, only weapons. He said they're enriching the weapons manufacturers. Do you think this is a legitimate understanding? In a way, I wish that were true, because they would only have weapons that they could use to fight and win a war. But we've given them, you know, tens of billions of dollars of cash as well. And part of the need is they have to operate their country. They have to pay their military. They have to fund, you know, the costs of war. So not just have weapons, but they also have to have, you know, cash and the resources that that cash buys. And look, the United States has given far more than the rest of the world. And I think that's the thing that a lot of Americans are frustrated with. You know, when Donald Trump wanted to get $8 billion to secure America's borders, even with Republican majorities, he couldn't get what he wanted to do to secure America. And, you know, this Congress has already given, you know, approaching $80 billion to secure Ukraine's borders. And I think that doesn't really resonate real well back home, at least in my district. And the idea that that money is being given with very little to no accountability also really sickens people. So if we are going to help them, they want to know that the Europeans and other countries around the world are paying their fair share. If India in particular is going to buy Russian oil and help Russia prop up their economy, they surely should be, you know, putting cash into the effort to defend Ukraine. So countries around the world should pay their share of helping Ukraine. And at the end of the day, look, this is Ukraine's war to fight, not America's war to fight. And frankly, it's Ukraine's war to fund, not America's war to fund. So Ukraine has to make the pitch, and America shouldn't be overly generous with the American taxpayers' money here, especially in light of the concerns about accountability. You talked about depoliticizing the FBI, DOJ in this country. We had former Congressman Devin Nunes on the show just a couple of days ago. He said that this is the most pressing issue for Republican congressmen entering the new Congress at the beginning of the year. What do you think is planned in this space among Republicans? Well, Congressman Jordan, who will be the chairman of the Judiciary Committee, and Congressman Comer, who will be the chairman of the Oversight Committee, highlighted yesterday that they do plan to look at DOJ. And I think one of the issues that's going to get a lot of attention is frankly how DOJ, the FBI, members of the intelligence community appear to have collaborated to concurrently time a message to basically kill the story about the Hunter Biden laptop that shows clear evidence of criminal conduct. And that's been pigeonholed for two years now. So this would have really been decisive in the election cycle. Tucker Carlson did one interview with a guy named Tony Bobulensky, and I offered to do a follow-up to vouch for Tony. I've known him for a while. He's a credible guy, former Navy officer, and has worked in financial services space for a while. Like this guy's telling you the truth. He's actually on the emails. You can say that it was Russian disinformation on the one hand, but when he's an American citizen saying, no, I have a copy of that same email on mine because I was in the CC line. I was on the email. I can tell you it wasn't from Russia. This is my email, and it's 100% accurate. So it's easy to validate a lot of this. This is stuff that in some ways high school kids could do that level of investigation of looking at email headers. And you had the intelligence community come out with a timed and coordinated statement, and it kind of shows what has been a challenge from the time Donald Trump was even a candidate. You had people lying on FISA, Foreign Intelligence Surveillance Act, warrants, and no accountability still. So again, two-tiered justice system. The American people don't trust it, and they have to be able to trust that Lady Justice is blindfolded, that there isn't one set of standards for the average American and another standard for the political elite, as long as those elite are aligned with the left. That congressman would be striking right at the heart of what President Trump might call the deep state, right? And we see how difficult it was for Trump all through the past six years, and even if you include Mar-a-Lago, even right up until now. How difficult will it be for yourselves in the House to actually show the American people that we do have a true justice system like you alluded to? Well, Donald Trump ran on the right message in 2016. In this space, as we're discussing, he coined the phrase, or shared a phrase that had already been coined, but applied it to this, was drain the swamp. So he realized there was a swamp there. I don't think he realized how sticky it was, how hard it would be to go away. And Chuck Schumer warned him, he's like, if you go after these people, they have six ways to Sunday to get you. And what has been shown is they have six ways to Sunday to get Donald Trump and his family, and frankly, others who've gone down any kind of path approaching it. And even with the legislative body, I mean, in the past, the intelligence community has been caught under the Obama administration, spying on members of the House and Senate, warrantless spying on American citizens, bad, but spying on legislators to try to influence legislation for their own protection of their status quo. That alone should say, boy, we have to go even more aggressively to get rid of the people that would be doing these things, and it hasn't happened. So while the relationship with Donald Trump, who obviously Democrats and progressives in particular couldn't stand, has created some challenges to bipartisan collaboration, Zoe Lofgren and I, progressive from California, had worked together to build a coalition of progressives and conservatives who were going to significantly disrupt the FISA reauthorization, the Patriot Act reauthorization or a portion of it in 2020, just before COVID hit. And we did stop what was known as Section 215, the business records provision from being reauthorized. But the whole bill that was going to go through the Judiciary Committee was blocked. Nancy Pelosi had to pull the bill because we had the votes from our coalition to offer an amendment in the nature of a substitute that would have fundamentally changed that reauthorization. So Speaker Pelosi pulled that bill in February, March of 2020. Well, because we would have had the votes to change it if you followed regular order. And so this goes to the heart of why it's important to follow regular order. So what did the Speaker do? She pulled the bill, refined it with the intelligence community and then put it on the floor subject to no amendment. And unfortunately, most of our colleagues went along with it and preserved the status quo, even though we had a bipartisan coalition that was aimed at reforming the status quo, which is desperately needed. So what we have to have is leadership at the top that isn't going to snatch defeat from the jaws of victory. We had a victory lined up. This was clearly the will of the people, our representatives that were sent here. And you saw the leadership aligned with the intelligence community to essentially protect the swamp. And, you know, hopefully Kevin McCarthy or whomever is our speaker in this next Congress is committed to actually changing the status quo. And in particular, like Devin Nunes says, fixing the Department of Justice and the intelligence community have to be front and center. We can't have a system where people don't trust the Department of Justice. It's been interesting two years. Congressman Warren Davidson of Ohio, appreciate it, sir. Thank you.