GAP Leadership Probably Participated in an Illegal Straw Donor Scheme

GapThrowaway4 Apr 2023 5:04 UTC
−10 points
10 comments7 min readEA link

Introduction

Now that the immediate FTX crisis has passed, the EA community and the public have had the chance to gather much more information about what happened. One of the most significant and highly-public aspects of SBF’s actions came via his political operation, Guarding Against Pandemics (GAP), and its associated entities. I’d like to take some time to analyze the quality of decisions made by GAP leadership, given what they knew at the time. In this piece, I’ll generally use “GAP leadership” interchangeably with the people who led Protect Our Future and the other SBF-associated political entities. The information landscape here is still changing relatively quickly, so it’s likely that new facts will emerge. I don’t have any specific insider knowledge of what I discuss in this piece. I’m posting anonymously to mitigate career risk.

From the information that is publicly available, it seems that the GAP team (sometimes known as “GEM” or Gabe Bankman-Fried, Elizabeth Edwards-Appell, and Michael Sadowsky) made decisions that put the EA community at moderate to significant risk. From what I can tell, the most important of these decisions was seemingly to participate in an illegal scheme to funnel money to political candidates, which they probably knowingly engaged in as donors and advisors to FTX executives. This decision seems distinct from any particular element of the fraud scandal that brought down SBF and FTX. While I assume that GAP leadership couldn’t have predicted SBF’s fraud and the collapse of FTX, it appears that some of their decisions created risks that the EA movement would benefit from reflecting on so that we can prevent a similar situation from happening again.

Obviously, committing crimes is bad, and worthy of investigation itself. But there’s a potential cost to GAP’s decision-making that sticks out to me. When beginning work in a new intervention area, particularly one that is fairly public-facing, it seems important to avoid “polluting the intervention commons.” In general, I believe EAs should take basic steps to ensure that future EAs will be able to continue work in a given area. In politics, this would look like not committing crimes, avoiding public scandals, and not angering key stakeholders or influential politicians, etc. Based on what I’ve read, I suspect that future EAs trying to work in politics might struggle to overcome the damage that GAP leadership has done.

Background

One of the key campaign finance allegations that the Southern District of New York is prosecuting against FTX executives, as well as Gabe Bankman-Fried (and possibly others at GAP), is that they orchestrated a straw donor scheme. In U.S. federal law, this crime is defined as:

  • “No person shall make a contribution in the name of another person or knowingly permit his name to be used to effect such a contribution, and no person shall knowingly accept a contribution made by one person in the name of another person.”

Using the definition above and publicly available information, it appears likely that GAP leadership engaged in a straw donor scheme, either as donors themselves (illegal) or as advisors to other FTX executives (maybe not illegal but very risky). It’s unclear whether the prosecution will find enough evidence to arrest or convict anyone in GAP leadership. Four people briefed on the investigation stated to the New York Times that authorities were looking into whether Gabe Bankman-Fried played a role in the campaign finance scheme. I’m unsure how difficult it is to prosecute straw donors, so it’s unclear to me how this is likely to proceed. Regardless of what happens in court, though, we have enough evidence to begin trying to understand what happened and to follow up in a few months.

“Woke Shit for Transactional Purposes”

In February, the Southern District of New York released a superseding indictment of SBF. Although some of the individuals remain unnamed, it’s clear that this document has critical information about the role that GAP leadership and others played in determining SBF’s political contributions. For example, it states: “A political consultant working for BANKMAN-FRIED asked CC-1 to make the contribution and told CC-1, ‘in general, you being the center left face of our spending will mean you giving to a lot of woke shit for transactional purposes.’”

Based on the details provided in the indictment and the timing of his giving, CC-1 has been strongly assumed to be Nishad Singh. The New York Times says, “Several former colleagues said they had assumed the consultant was Mr. Sadowsky, and a person with knowledge of the conversation confirmed that it was him.” They also write, “Colleagues privately chided him for using coarse, sometimes explicitly transactional language in written communications about donations, three people familiar with the matter said.”

Since this document’s release, Singh has pleaded guilty to campaign finance violations including participating in a straw donor scheme, among other crimes. But does this mean that GAP leadership were involved in the scheme?

A reporter who has followed the SBF saga closely argues, “Guarding Against Pandemics staff effectively spoke for Singh’s money in conversations with fundraisers, and that he would sometimes make donations in connection with GAP events in turn—regardless whether he actually attended.” This suggests that GAP leadership didn’t just know about, but participated in a straw donor scheme.

GAP Leadership’s Personal Political Giving

GAP leadership also participated heavily in political giving themselves. At least 300 political contributions are suspected by the investigation to have been made with straw donors, so it seems pretty plausible that at least some of these came from GAP leadership. While it’s theoretically possible that FTX and GAP maintained a firewall when it came to straw donor practices, thereby insulating GAP leadership, very little about FTX’s internal behavior suggests that they would’ve done this.

Looking through the Federal Election Committee database for giving during the 2022 election cycle, Nishad Singh represents the bulk of FTX-associated giving to federal political candidates and PACs, at nearly $8.5 million. But among Democratic candidates, GAP leadership was the next most important source of funding. Gabe Bankman-Fried’s giving totals over $404,000, while Michael Sadowsky contributed over $218,000, and Elizabeth Edwards gave over $61,000. Critically, these totals do not include any state or local giving. Based on the few state giving databases that I’ve looked at and this piece, I suspect GAP leadership represents a higher proportion of FTX-related giving at the state level than they do at the federal level.

I didn’t have a strong sense of how unusual this style of individual giving is in the political industry, so I looked up how much giving the heads of the top Democratic-leaning PACs and their org’s Presidents/​CEOs typically give on FEC.gov. Most of the top Dem PACs are unions, so I went further down to select a handful of private companies that give a lower percentage of their donations to Democrats. This isn’t a formal analysis—it’s just a quick look at what the industry does. As you can see below, most of the heads of PACs or org executives gave far less to politicians than GAP leadership did (although most of them gave to their own PAC). Given that GAP leadership individually donated much more than other PAC leaders, I suspect their donations drew more attention from other political givers, politicians, regulators, etc., which adds more risk.

  • Lee Saunders/​Elissa McBride (American Federation of State/​Cnty/​Munic Employees) - $0 to candidates

  • Randi Weingarten/​Tor Cowan (American Federation of Teachers) - under $5k to candidates

  • Kenneth Cooper/​Danielle Eckert (International Brotherhood of Electrical Workers) - $0 to candidates

  • Kevin Price/​Thomas Astrup (American Crystal Sugar) - $0 to candidates

  • Joseph Fengler/​Vimal Kapur (Honeywell) - $0 to candidates

  • Linda Auglis/​Craig Purser (National Beer Wholesalers Association) - $2500 to candidates

  • Jeff Shockey/​Gregory Hayes (Raytheon Technologies) - Under $15k to candidates

An Example Where We Have More Information

In Vermont, more information about GAP’s decision-making has come forward via the prosecution’s investigation. This is the race where a political consultant for SBF (likely Sadowsky, though we don’t know for sure) described Singh’s involvement as serving as the face of supporting “woke shit for transactional purposes.” During the campaign, Gabe met with two Congressional candidates to discuss pandemic prevention, according to the eventual winner’s campaign manager. The winner herself has stated to local press that she didn’t know any of the other GAP donors except for Gabe. This candidate secured GAP’s backing, and over $1 million in support from Singh and the Protect our Future PAC, a GAP-associated entity. While we can’t be 100% confident that GAP leadership was aware at the time that Singh’s donation actually came directly from Alameda Research funds, it’s clear they were intimately involved in Singh’s decision to give in this race.

Auto-Deleting Signal Channel

More broadly, the federal indictment states that SBF and others maintained an auto-deleting Signal chat called “Donation Processing.” Among other purposes, this chat was used to coordinate political gifts from individuals using funds from SBF. The money was transferred from Alameda’s bank account to these individuals and then donated to political campaigns (which is basically a textbook straw donor scheme).

While it is possible that GAP leadership had no knowledge of this arrangement, it’s hard to believe. As SBF’s primary political organization, identifying political candidates and handling the administrative duties of processing political donations would’ve fallen squarely within their job description. According to public reporting, “Gabe played a role in steering Singh’s early donations as early as 2018… and by the time 2022 rolled around, other S.B.F. aides like Elizabeth Edwards-Appell and Michael Sadowsky were helping move his money.”

Summary of Key Facts

  • Nishad Singh has pleaded guilty to acting as a straw donor. GAP leadership was widely known to be the primary group of people guiding SBF and Singh’s political contributions.

  • GAP leadership personally contributed large sums of money to politicians. The overall number of contributions suspected by the federal prosecution to have come from straw donors suggests GAP leadership may have participated themselves.

  • In one particular instance, Gabe met privately with a Congressional candidate who ended up receiving over $1 million in support from Singh, which is now a known straw donation. An unnamed consultant (likely Michael Sadowsky) described Singh in private as the “face” of political giving for transactional purposes.

  • A Signal thread (likely containing GAP leadership) was used to coordinate straw donations to be made by SBF and FTX.

While no particular piece of the evidence above can give us a high degree of confidence about what happened, the collection of evidence suggests that GAP leadership participated in a straw donor scheme. It is clear we’re still at the beginning of the information-gathering stage, and the prosecution has much more information about many of the above points than it has shared so far. Given the strong association between SBF, FTX, and the EA movement, GAP leadership seems likely to have engaged in decision-making that placed the EA movement at significant legal and optics risk.

Don’t Pollute the Intervention Commons

One of the most harmful effects of GAP’s decisions, above and beyond the FTX crisis, is that it has likely worsened how politicians and public figures perceive EA. I’m not an expert here, so I defer to others on exactly what this means, but prior to GAP, not very many EAs were involved in politics. For many politicians, their engagement with GAP (and likely biosecurity) was one of their first points of contact with EA. It’s unclear to me if this harm will extend to other EA cause areas where GAP did not engage on those issues to nearly the same degree.

As a few examples of the type of frustration that GAP created, here are some relevant pieces:

  • The Hill details how investment from the House Majority Campaign in support of the Carrick Flynn campaign (bankrolled by GAP) led to a “blowup” between party establishment and the Congressional Hispanic Caucus. Oregon Democrats were also very frustrated with this campaign.

  • Democratic leadership, including the new U.S. House Speaker Hakeem Jeffries, have received requests from prosecutors asking for information regarding donations from SBF and his associated entities.

  • Candidates in races across the country who received significant support from GAP have had to defend themselves from negative media coverage and in one case step down from an influential position, e.g. in Chicago (2), North Carolina, Florida, Georgia, and more. This piece covers some of the races and the awkwardness that candidates have felt about winning races with GAP support.

  • Post-FTX crisis, politicians have had to explain to media outlets what they’re doing with the money. E.g. in this piece, The Daily Beast contacted 26 elected officials who received GAP support and asked if they’d be returning/​donating the contributions. Some politicians who donated GAP and SBF-related funds to charity (to minimize the initial wave of negative media coverage) may end up having to pay twice the amount, depending on how the bankruptcy process unfolds.

Perhaps some of the politicians above aren’t aware that SBF is connected to EA. Or perhaps they are willing to separate the damage that GAP and SBF did compared to the importance of EA cause areas. However, I am fairly confident that in aggregate, GAP decision-making had a negative expected value on how US politicians view EA. Going forward, I would suggest that EAs interested in politics and other new intervention areas act more carefully to avoid harming future efforts in their area.

GapThrowaway4 Apr 2023 5:04 UTC
−10 points
10 comments7 min readEA link