How cryptocurrency could decide Chicago’s next mayor

With less than three weeks to go before Chicago’s mayoral primary, the usual questions about housing and crime and spending on social services have dominated. But the conflict among the crowded field has given rise to a new wedge issue: crypto-corruption.

The mayoral contest marks the first major election since FTX founder Sam Bankman-Fried was extradited from the Bahamas in handcuffs. The disgraced cryptocurrency magnate played a prominent role in the 2022 midterm elections, showering over 40 million dollars on candidates from both parties. Those lavish political donations have now gone radioactive, as he awaits trial for defrauding customers on his company’s crypto trading exchange. The fallout caused a stir in Washington during Democratic jockeying for assignments on the House Financial Services Committee, raise still unresolved questions about conflicts of interest.

Chicago Democratic Congressman Chuy García, a close ally of Sen. Bernie Sanders (I-VT), was one of those candidates blessed with a slice of Bankman-Fried’s fortune. The campaign’s acceptance of a series of illegal funds could prove to be the kiss of death for his current bid to unseat embattled incumbent Lori Lightfoot as mayor.

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Lightfoot has led the attacks against García over the campaign contributions, to dampen his reputation as a reformer against the city’s political machine. But Lightfoot is betting on voters’ short-term memory. During her tenure, she has embraced crypto companies and even FTX, helping the company found its original headquarters in Chicago and raising far larger amounts of ill-gotten funds than García ever received to launch a now-defunct basic income pilot. Even after FTX’s collapse and several others bankruptcy and scandals in crypto, Lightfoot’s administration has continued to promote Chicago as a crypto capital.

In other words, when it comes to crypto, few contestants in the mayoral race have clean hands. And the whole story cautions against the usual “anything goes” mentality of campaign finance.

LIGHTFOT’S TYPE HAS BEEN DONE for fear of crime and feuds between the mayor’s office and the local teachers and police unions. Her low approval ratings opened the floodgates for eight challengers to enter the hotly contested race. That race includes Brandon Johnson, the Chicago Teachers Union and Working Families Party-endorsed candidate, and Paul Vallas, the former CEO of Chicago Public Schools, who is backed by the police union and much of the city’s business community.

When García announced his candidacy last November, he rose to the front of the pack largely because of his national profile and name recognition in the city, having lost a mayoral bid to former City Manager Rahm Emanuel in 2015.

Lightfoot dipped into her war chest to clip his wings. In an advertising campaign that began in January, Lightfoot’s campaign called García a “crypto villain,” points to the $2,900 Bankman-Fried donated directly to García’s congressional campaign. More consequently, Bankman-Fried’s Fight for Our Future political action committee also spent $150,000 on mailings and other promotional materials on behalf of García, even though he was running virtually unopposed.

Critics paint the FTX money as an attempt at quid pro quo in exchange for favorable regulatory treatment; García sits on the House’s powerful Finance Committee. García initially gave $2,900 in funds to a charity in December and voluntarily resigned from the Financial Services Committee; yesterday he complied with one request from lawyers from FTX, which is currently bankrupt, to return the contributions to repay creditors.

In a public statement, García’s campaign said Mayor Lightfoot “resorted to multiple lies and desperate attacks … Lori knows that Chuy has consistently fought corruption. That is why she asked for his endorsement in 2019.”

Lightfoot’s strategy is clear. By raising the crypto bonds, Lightfoot aims to undermine García’s credentials as a reformer.

“The tactic is to try to peel away enough voters from Chuy to consolidate her own progressive support in the candidate field,” said Dan Cohen, an independent political strategist in the city.

But less than a year ago, in May 2022, Mayor Lightfoot stood with FTX’s President of US Operations, Brett Harrison, to cut the red ribbon at the grand opening of the company’s new headquarters in Fulton Market. In front of a press corps, Lightfoot praised the company for choosing Chicago and hailed its innovative business as a vehicle for “inclusive growth.”

“This is a mechanism and a tool to bring traditionally underrepresented and ignored populations into the crypto world so they can take ownership and control of their own financial destiny,” the mayor said.

Although short-lived, the opening made a splash before the company moved its headquarters to Miami a few months later.

FTX’s launch in Chicago came after the Lightfoot administration spent months rolling out the red carpet. The mayor’s office even tasked several top political advisers with curing the company, an unusually high priority for a single economic development project.

In recent years, Chicago has rebranded itself as a crypto hub to compensate for other financial losses. Under Lightfoot, Chicago was hemorrhaging longtime employers, notably Boeing’s headquarters, which moved to Virginia the same week FTX arrived. Last fall, financial titan Citadel dealt the city a blow by moving to Miami amid expressed concerns about downtown crime.

Attracting fintech firms had been a priority for the city dating back several years, but peaked during Lightfoot’s tenure. According to a World Business Chicago report, the city attracted $4.6 billion in investment to its fintech ecosystem in 2021, more than double what it received the year before.

As a longtime financial center that pioneered commodity and options trading, Chicago’s pivot to cryptocurrency seemed like a logical step for the downtown business community. It also had significant buy-in from allies on the left flank of the city’s Democratic political machine who bought into the technology’s promise to democratize finance despite indications of widespread fraud.

“It was a coalition that doesn’t often appear in Chicago politics of downtown business and financial elites and the progressive anti-bank and anti-financial institution crowd on the other side coming together and saying crypto can be good for Chicago,” said Justin Marlowe, a research professor at the University of Chicago Harris School.

Lightfoot appealed to that alliance to deliver FTX’s headquarters as part of the city’s regeneration. At FTX’s HQ launch, Lightfoot and FTX executives announced that the company would donate $1 million to the non-profit organization Equity and Transformation (EAT) to run a universal basic income pilot program for formerly incarcerated residents.

Earlier that week, the city launched a parallel UBI pilot for Chicago’s low-income population in collaboration with various private partners, including EAT. Although separate from the FTX funding for EAT, city officials treated the joint programs as a partnership at the time.

Deputy Mayor for Economic and Neighborhood Development Samir Mayekar said: “How can Web3 really be relevant in the lives of people on the south and west sides for example? And that’s why we partnered with FTX … They stood up with us and said, ‘You know what, we’re going to launch the largest universal basic income pilot that’s led by the private sector here in Chicago.’

The collapse of FTX in November left EAT the UBI program without more than half of its remaining funding. Since then, the city has distanced itself from the partnership, claiming it was not a party to the agreement, according to a city spokesperson.

However, that doesn’t mean the city has stopped promoting its homegrown crypto industry. In December, after the arrest of Sam Bankman-Fried, the mayor’s office said that Chicago Sun-Times that fintech was bigger than just FTX and “the entrepreneurial ecosystem in Chicago includes over 300 companies.”

Both the city council and the finance department are currently listed as creditors on FTX’s recent bankruptcy filing, although the city says it has no direct exposure.

“The city does not have any of its own funds managed under the treasurer’s office or pensions in cryptocurrency,” a city spokesperson confirmed to Prospectus. The spokesperson did not clarify why it is still a creditor in the bankruptcy notice.

IN CHICAGO IS NOT CRYPTO an unimportant matter. Voters may not know Sam Bankman-Fried by name, but many have been burned by the assets he facilitated on the stock exchange. According to documents obtained in a Freedom of Information Act request by Chicago Readerover 2,100 residents of Chicago alone filed complaints with the Federal Trade Commission about crypto scams, testifying that they lost close to $45 million.

On the issue of the current mayoral race, García has suffered the greater costs of his association with Bankman-Fried. After Lightfoot’s publicity blitz, García fell in the polls by as much as ten points according to some estimates.

“Lightfoot drained a lot of money to go negative on Chuy, but they clearly hurt his campaign,” said Frank Calabrese, a research and public-policy analyst for Cook County government and a political consultant.

By hitting crypto first, Lightfoot made it challenging for García to hit back at his own record without bringing more attention to the issue. Instead, García hit back at Lightfoot on public safety, calling for a greater police presence on the city’s streets. Although crime is a major concern for voters, elevating public safety as a top issue could push more voters to Paul Vallas, the police union’s pick, who received a donation from an officer-involved shooting of Laquan McDonald.

Even García’s core base of support among Latinos, who make up nearly 30 percent of the city, may be slipping. According to Calabrese, who worked on redistricting for the city council’s Latino caucus, Latino voters in several city wards have recently gravitated toward Vallas.

While Lightfoot’s attacks have cost García’s candidacy, they haven’t exactly worked in her favor either. Lightfoot does not appear among the top two candidates in the latest polls. The “crypto villain” label has worked with some progressives, but many of those voters are likely to have moved over to Brandon Johnson’s camp, which has flourished recently, rather than the incumbent mayor.

If no one reaches 50 percent, which is likely in the crowded field, the top two move on to the general election. Lightfoot and García now both risk being left out of that race.

With three weeks until the primary, the race is deadlocked. The effectiveness of Lightfoot’s ads provides a cautionary tale to other progressives tied up in the crypto lockout about the strength of the attack line.