Spotlight shines on ‘Blockchain Eight’ lawmakers after collapse of crypto firm FTX

House lawmakers known as the “Blockchain Eight” who advised against an investigation into the cryptocurrency industry in March are under renewed scrutiny in the wake of the indictment of FTX founder Sam Bankman-Fried on fraud charges.

Five of the eight lawmakers, from both parties, received campaign donations from FTX executives while expressing concern to the Securities and Exchange Commission last spring that inquiries into crypto and blockchain companies, allegedly including FTX, were too aggressive.

Their March 16 letter to SEC Chairman Gary Gensler protested the “recent trend toward using … investigative functions to gather information from unregulated cryptocurrency and blockchain industry participants in a manner inconsistent with the Commission’s standards for initiating investigations .” They suggested the SEC’s efforts violated the Paperwork Reduction Act.

Critics accuse lawmakers of running interference for companies like FTX, which collapsed in November in an alleged fraud likened to a giant Ponzi scheme.

Former billionaire Mr. Bankman-Fried, 30, was charged in a federal indictment unsealed Tuesday with defrauding more than 1 million investors and providing illegal straw man campaigns. He is being held in prison in the Bahamas, in a notoriously dirty prison where inmates spend 23 hours a day in their cells.

The lawmakers’ letter in March “was clearly designed to stop the SEC from looking into FTX,” said Matt Stoller, director of research at the nonprofit American Economic Liberties Project and a former Senate Budget Committee aide.

One of the lawmakers, Representative Ritchie Torres, New York Democrat, said Wednesday that he does not “completely understand the criticism.” He said critics are defaming the integrity of lawmakers.

“There is a difference between asking about policies and practices and interfering with a particular investigation of a particular company,” Mr. Torres said on Coin Desk TV. “The former is an exercise of congressional oversight. The latter would be a breach of ethics. And to blur the line between the two, frankly, does a disservice to the truth and represents defamation of character against the eight of us.”

The other lawmakers who signed the letter were Reps. Tom Emmer, Republican of Minnesota, who will become House Majority Whip in January; Byron Donalds, Florida Republican; Warren Davidson, Republican of Ohio; Jake Auchincloss, Massachusetts Democrat; Darren Soto, Florida Democrat; Josh Gottheimer, Democrat of New Jersey; and Ted Budd, a Republican from North Carolina who was elected to the Senate this year.

Of the group, Mr. Emmer and Mr. Gottheimer received the most donations from FTX, $11,600 each. Mr. Auchincloss received $6,800, and Mr. Budd and Mr. Torres each received $2,900.

Mr. Torres said he gave his FTX donation to charity when he learned of the alleged fraud. Last week, he asked the Government Accountability Office to open a review of the performance of Mr. Gensler and the SEC regarding the collapse of FTX.

Mr. Stoller said it was a hypocritical move. He told Coin Desk TV that Mr. Torres “blamed the SEC for the things he himself did.”

Mr. Emmer’s office referred inquiries to his comments on Twitter. In a series of posts, he said his office had “received a number of tips from crypto and blockchain firms that SEC Chairman @GaryGensler’s information reporting ‘requests’ to the crypto community are overburdening, don’t feel particularly … voluntary … and are stifling innovation .”

“We are simply asking questions pursuant to congressional oversight authority,” he tweeted.

Mr. Emmer served in the 2022 election cycle as chairman of the National Republican Congressional Committee, the campaign arm of House Republicans.

The NRCC’s related super PAC, the Congressional Leadership Fund, received $2 million in the 2022 cycle from FTX co-CEO Ryan Salame and $750,000 from the company’s political action committee.

Mr. Budd’s campaign also received $517,000 from a super PAC set up by Mr. Salame, the American Prospect reported.

Auchincloss said through a spokesman that the lawmakers’ letter to Gensler “did not question the SEC’s efforts.”

“Rather, the letter called into question the SEC’s prioritization of its enforcement actions,” assistant Matt Corridoni said. “The Congressman believed then, and believes now, that the SEC should have prioritized better enforcement of non-compliance to focus on whales, like FTX, not minnows. And if it needed more resources to do so, as it appears to be the case , then it should have asked for them. In fact, in October 2021, the congressman expressly told the SEC chairman that he agreed with his efforts, and asked him what else he needed from Congress.”

Harrison Fields, a senior adviser to Mr. Donalds, said the legislature “was and remains concerned with the SEC’s approach to regulating digital assets in the absence of congressional legislation.”

“In no way, shape or form was Congressman Donald attempting to or involved in influencing any of the SEC’s ongoing investigations,” Mr. Fields told The Washington Times. “Congressman Donalds strongly believes that those who engage in illegal conduct should be held accountable for their actions, while maintaining that regulators and lawmakers act within their constitutional bounds.”

He said the SEC has “openly engaged in regulation by enforcement with little guidance on which assets are legally subject to the SEC’s jurisdiction, while encouraging industry participants to ‘come and talk to SEC staff.’

“The congressman also felt that there were procedural issues regarding the SEC’s use of its enforcement division for its voluntary information requests. The congressman feels that this combination seriously inhibits the market and is an unsustainable method of governance,” he said.

Mr. Bankman-Fried was the second-largest campaign donor to Democrats in the 2022 election cycle, giving about $40 million.

Federal prosecutors said this week that Mr. Bankman-Fried also made illegal campaign contributions “to candidates and committees associated with both Democrats and Republicans.” They said the illegal donations came from Mr. Bankman-Fried’s hedge fund, Alameda Research, part of his now-collapsed crypto empire that was once valued at $32 billion.

“These contributions were disguised to appear as if they came from wealthy co-conspirators, when in fact the contributions were funded by Alameda Research with stolen client money, and all of this dirty money was used in service of Bankman-Fried’s desire to buy two parties. influence and influence the direction of public policy in Washington,” said Damian Williams, U.S. Attorney for the Southern District of New York.