Cryptocurrency and Politics: How Donald Trump and SBF Demonstrate the Potential Impact of Digital Assets on Campaign Finance Laws
By: Moish E. Peltz, Esq. and Rachael A. Harding, Esq., with contributions from Matthew H. Feinberg, Esq.
Recent headlines that Donald J. Trump has launched an NFT (or “rare digital collectible trading cards”), and that Samuel Bankman-Fried (or SBF, the former CEO of FTX) has been charged by the US Department of Justice (DOJ) with having violated campaign finance laws, highlight emerging legal issues related to the intersection of campaign finance laws and cryptocurrency.
I. Donald J. Trump Launches Digital Collectible Trading Cards
On December 15, 2022, former President Donald Trump announced the launch of a collection of NFTs (Trump Digital Trading Cards). The day before, President Trump teased a “MAJOR ANNOUNCEMENT” that led to speculation of forthcoming news that might be political in nature. Instead, his announcement on social media platform Truth Social, Trump stated that he will be selling 45,000 “rare digital collectible trading cards” for $99 each and provided an corresponding video infomercial. Purchase of the NFTs also entered buyers into a sweepstakes for future perks. Prizes include: dinner with the former President, a one hour round of golf with the former President, or a $250 dining gift card for the Mar-A-Lago resort.
The NFTs were minted on Polygon, which is a blockchain compatible with Ethereum, and perceived as popular for brand partnerships due to its relatively lower gas costs. The NFT sale (which accepted payments via cryptocurrency or credit card) sold out all 45,000 NFTs on the first day of the sale (reserving 1,000 NFTs for the sponsor), and generated at least $4.3 million in initial sales for the sponsor of the NFT project, an entity named NFT INT LLC. As of publication the project has also seen at least 7,100 ETH (or $8.5 million) in secondary market transaction volume, of which the sponsor may receive a portion of as secondary royalties. On the secondary market, the NFTs peaked at a price of approximately $940 on December 17th, before settling at a more modest price of around 0.17 ETH (or around $200 on December 21st, representing a 100% profit for any initial purchaser). Some purchasers were more lucky as the second-most statistically rare NFT in the collection, a 1-of-1 NFT with an “Autograph” trait (Trump Digital Trading Card #5809), was bought for $99 and then sold days later to pseudonymous OpenSea user “Rocka_Fella” for 37 ETH (or around $43,000, a casual 43,334% profit).
To be clear, at this point, there is no evidence that NFT profits will be used to fund Trump’s campaign. In fact, the website for the NFT project specifically states NFT INT LLC, “is not owned, managed or controlled by Donald J. Trump, The Trump Organization, CIC Digital LLC or any of their respective principals or affiliates. NFT INT LLC uses Donald J. Trump's name, likeness and image under paid license from CIC Digital LLC, which license may be terminated or revoked according to its terms.” Another FAQ question: “Is any of the money from this collection going to the Donald J. Trump campaign for President?” Answer: “NO. These Digital Trading Cards are not political and have nothing to do with any political campaign.”
However, given that President Trump has extensively promoted the project, it seems reasonable to presume that he stands to personally financially benefit from the project. Questions that follow include:
(1) with Trump announcing his candidacy for the 2024 presidential race one month prior to the NFT launch, how, if at all, will these NFT’s be used and promoted in context of his 2024 White House bid?
(2) will any of the NFT sales proceeds ultimately be used to support his campaign?
(3) what would be the legal consequences of Trump (or any other politician) using profits received from an NFT sale to support (or as a donation to) a political campaign? Can the NFTs be used to promote the political campaign or in related marketing? If nothing at all, the success of the Trump NFT could plausibly inspire future candidates to use NFTs to fundraise in the future.
(4) where is the dividing line between NFTs issued by a politician in their personal capacity (or using the image of a politician under license), and NFT’s used in furtherance of a political campaign?
Indeed, the 2022 midterm elections saw several candidates use NFTs to fundraise. For example, Blake Masters launched a Zero to One Origins NFT, which sold out in less than 36 hours, and raised more than $550,000 for his unsuccessful U.S. Senate campaign in Arizona. However, eligibility for the NFT required a $5,800 donation as a traditional campaign contribution to Blake Masters’ campaign.
Dr. Scott Jensen released “state fair” themed NFTs as part of his unsuccessful 2022 campaign for Minnesota governor. And Congressional candidate Shrina Kurani sold NFTs as part of her unsuccessful 2022 bid for California’s 41st Congressional District election, which served as the campaign's “merchandise” and offered holders “access to airdrops from other crypto and climate projects, conversations with climate scientists and the campaign’s Earth Day party in the metaverse.” It seems that this trend is also occurring down ballot, and is just getting started.
II. Political Donations from FTX and SBF
The United States Department of Justice (DOJ) recently unsealed an indictment against Samuel Bankman-Fried (SBF) which contains eight criminal counts. The Commodities Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) have also commenced proceedings stemming from the FTX debacle. Many of the assertions levied against SBF focus on the allegations surrounding the devastating collapse of the FTX group of companies, including allegations that SBF devised schemes to defraud customers, lenders, and investors of FTX.com. However, one count (Count Eight, Conspiracy to Defraud the United States and Violate the Campaign Finance Laws), is tied directly to allegations that SBF utilized FTX user funds to support various politicians and political groups from both sides of the political aisle in violation of federal campaign finance laws.
According to the DOJ indictment, from 2020 through November 2022, SBF conspired to defraud the United States, in violation of 18 U.S.C. Section 371, “involving the making, receiving, and reporting of a contribution, donation, or expenditure, in violation of Title 52, United States Code, Sections 30109(d) (1) (A) & (D).” The indictment alleges that SBF obstructed the Federal Election Commission's function to administer federal law concerning source and amount restrictions in federal elections, including the prohibitions applicable to corporate contributions and conduit contributions. The indictment also alleges that SBF improperly aggregated more than $25,000 in a calendar year and did so in the names of others and by using corporate funds to donate to candidates for federal office and joint fundraising committees. Importantly. federal campaigns are required by law to return contributions that are from prohibited sources, over the contribution limit, or otherwise illegal. It remains to be seen as to how much might be returned.
The Wall Street Journal reported that from 2020 through November 2022, “Bankman-Fried and other members of FTX made more than $70 million in political contributions, according to FEC records.” SBF apparently gave $40 million to mostly Democratic leaning politicians and political-action committees, while Ryan Salame, the COO of FTX, gave more than $23 million to Republican leaning politicians and political-action committees. In a December 13, 2022 press conference, Damian Williams, the U.S. Attorney for the Southern District of New York, who is leading the case against SBF, stated “These contributions were disguised to look like they were coming from wealthy co-conspirators, when in fact the contributions were funded by Alameda Research with stolen customer money,” Mr. Williams said. “All of this dirty money was used in service of Bankman-Fried’s desire to buy bipartisan influence and impact the direction of public policy in Washington.”
On December 19, 2022, the new management of FTX announced a process for the voluntary return of so-called “avoidable payments,” and invited all recipients of such payments to contact FTX and make arrangement for the return of such payments. The announcement further stated “To the extent such payments are not returned voluntarily, the FTX Debtors intend to commence actions before the Bankruptcy Court to require the return of such payments, with interest accruing from the date any action is commenced. Recipients are cautioned that making a payment or donation to a third party (including a charity) in the amount of any payment received from a FTX Contributor does not prevent the FTX Debtors from seeking recovery from the recipient or any subsequent transferee.” The Wall Street Journal reported that at least two federal political action committees have "set aside the contributions from FTX officials with the intention of returning them once they are instructed to do so by law-enforcement authorities."
These activities raise questions about how politicians and political-action committees or any subsequent transferees should best proceed with any allegedly ill-gotten FTX customer funds.
III. Takeaways for Campaign Finance Compliance
With the launch of any NFT sale by a political figure in the US, it is important to keep in mind various Federal, State and local campaign finance laws, which differ from jurisdiction to jurisdiction.
1. Cryptocurrency Contributions and Federal Elections
The Federal Election Commission has interpreted the Federal Election Campaign Act of 1971 (the “Act”) as allowing a cryptocurrency contributions. “A committee can receive bitcoins as contributions. The Act defines a “contribution” to include “any gift, subscription, loan, advance, or deposit of money or anything of value made by any person for the purpose of influencing any election for Federal office.” In Advisory Opinion 2014-02, the Commission concluded that bitcoins are "money or anything of value" within the meaning of the Act. To those in the political realm, the Federal Elections Commission treat cryptocurrency contributions as in-kind contributions.
Bitcoins may be received into and held in a bitcoin wallet until the committee liquidates them. Holding bitcoins in a bitcoin wallet does not relieve the committee of its obligations to return or refund a bitcoin contribution that is from a prohibited source, exceeds the contributor's contribution limit, or is otherwise not legal.
A political committee that receives a contribution in bitcoins should value that contribution based on the market value of bitcoins at the time the contribution is received. FEC regulations also state that campaigns cannot directly use Bitcoin to purchase goods or services, as they are required to first liquidate the currency.
Federal campaigns are under a continuing obligation to return contributions that are from prohibited sources, over the contribution limit, or are otherwise unlawful. Thus, the campaign is required to track each donation through liquidation to ensure that it has not received an over-the-limit contribution. In theory, the erratic valuation of cryptocurrency means a campaign might report a cryptocurrency contribution under the legal contribution limit at the time they receive the donation but find that the value is over the limit by the time its liquidated.
In June 2021, the National Republican Congressional Committee became the first national party committee to start accepting donations in cryptocurrencies.
Finally, on December 15, 2022, the FEC issued an advisory opinion which stated that DataVault, a for-profit corporation whose business includes the creation and sale of NFTs, “may create and sell NFTs to political committees for use in fundraising in the ordinary course of its business.” In DataVault’s proposal, they contemplated that “the political committees will give NFTs to their contributors as souvenirs ‘in a manner akin to a campaign hat.’” The political committees would then be responsible for complying with the Act and any related regulations.
2. State Elections
There are a few jurisdictions within the United States that expressly permit cryptocurrency contributions, including Arizona, the District of Columbia, Colorado, Massachusetts, Montana, Tennessee, and Washington. These jurisdictions view cryptocurrencies as in-kind contributions, allowed by their contribution guidelines, which align with the FEC’s definition. Some states have expressly prohibited cryptocurrency use in political campaigns, including, North Carolina, Oregon, and South Carolina, citing the volatility of a cryptocurrency’s value, which frustrates the efforts made by campaigns to comply with contribution limits. The decentralized nature of cryptocurrency also makes it challenging for campaigns to collect the information needed for public disclosure to verify the true sources of contributions. Certain platforms have emerged to solve this compliance hurdle and allow nonprofit organizations, including political organizations, to accept cryptocurrency and NFTs as donations.
Various States have also begun to answer specific questions related to the receipt of cryptocurrency or sale of NFTs as political contributions. For example, in March 2022, the California Fair Political Practices Commission issued an opinion as to the campaign reporting requirements for the sale of NFTs, explicitly providing guidance that “When a committee hires a vendor to create and sell NFT trading cards, the entire purchase price of the NFT must be reported as a contribution on the committee’s campaign statements.”
3. New York Elections
The New York State Public Finance Board and the New York City Campaign Finance Board are actively considering whether political candidates should be allowed to accept cryptocurrency as a form of campaign contribution and whether these contributions would be eligible for State or City matching programs. According to the 2021 Post-Election Report issued by the New York City Campaign Finance Board, campaigns in the State of New York are currently allowed to receive contributions in the form of checks, credit or debit card payments, cash, money orders, text messages, or in-kind donations (donations of goods or services). The contribution limits for these donations depend on the office being sought and the candidate’s participation in the New York City public matching funds program. For example, in 2021, the contribution limit for a City Council candidate was $1,000 for a matching funds participant or $2,850 for a non-participant.
The 2021 Post-Election Report recommends enacting legislation to expressly prohibit the acceptance of cryptocurrency as a contribution method due to the unnecessary risk it poses to compliance and enforcement regulations and the fact that it is not clearly contemplated by current contribution rules. Despite these concerns, some campaigns have already started accepting cryptocurrency contributions, as they perceive financial benefits and see those contributions as a way to energize younger voters.
A campaign’s classification of cryptocurrency directly impacts how campaigns can receive or spend it. For example, as an in-kind contribution, cryptocurrency is subject only to regular contribution limits, but would also be subject to expenditure limits as well. As discussed above, some jurisdictions have enacted legislation either permitting or prohibiting cryptocurrency donations.
Currently, New York State law does not classify cryptocurrency. However, the New York City 2021 Post-Election Report suggests that, of all the currently defined methods of campaign contributions, cryptocurrency most closely resembles cash. Both cash and cryptocurrency have a higher degree of pseudo-anonymity, which creates a potential for lack of documentable ownership. This is the reason why cash contribution limits are lower in New York. New York State allows campaigns to receive contributions over $100 only in the form of a check, draft, or other instrument payable to the candidate and signed or endorsed by the donor, with the exception of credit card payments, for which the candidate must preserve a copy of the document used to secure payment.
Thus, it seems unlikely that New York State and New York City will explicitly permit candidates to accept and use cryptocurrency-related payments, including NFTs, in the near future.
Considering the range of possibilities from ordinary political contributions made by cryptocurrency companies, to political donations made via cryptocurrency, to political candidates launching NFTs, it is now evident that blockchain technology provides exciting opportunities in the political arena. The promise of additional fundraising avenues, colorful NFT “merch,” all backed by the transparency provided by blockchain transactions offers to help with public disclosure, compliance, and accountability. However, the use of cryptocurrencies to fund politicians and political campaigns brings about unresolved questions and significant compliance risks as well. Anyone seeking to use or accept cryptocurrencies for political purposes, or funds derived from NFT sales for political campaign funding should consult with a qualified attorney in their jurisdiction.
DISCLAIMER: This summary is not legal advice and does not create any attorney-client relationship. This summary does not provide a definitive legal opinion for any factual situation. Before the firm can provide legal advice or opinion to any person or entity, the specific facts at issue must be reviewed by the firm. Before an attorney-client relationship is formed, the firm must have a signed engagement letter with a client setting forth the Firm’s scope and terms of representation. The information contained herein is based upon the law at the time of publication.