Erin Hooley/AP Photo
Rep. Chuy García participates in a forum with other Chicago mayoral candidates hosted by the Chicago Women Take Action Alliance, January 14, 2023, at the Chicago Temple in Chicago.
With less than three weeks before the Chicago mayoral primary, the usual issues of housing and crime and social service spending have predominated. But the infighting among the crowded field has yielded 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 tycoon played a prominent role in the 2022 midterm elections, showering over $40 million onto candidates of both parties. Those lavish political donations have now turned 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, raising 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 sliver of Bankman-Fried’s fortune. His campaign’s acceptance of an array of illicit funds could prove to be the kiss of death for his current bid to unseat embattled incumbent Lori Lightfoot as mayor.
Lightfoot has led the attacks against García for the campaign contributions, to dampen his reputation as a reformer against the city’s political machine. But Lightfoot is banking on voters’ short-term memory. During her tenure, she has embraced crypto companies and even FTX, helping the company site its initial headquarters in Chicago and collecting far greater amounts of ill-gotten funds than García ever received to launch a now-defunct basic-income pilot. Even after FTX’s collapse and several other bankruptcies 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 mayor’s race have clean hands. And the whole tale cautions against the usual “anything goes” mentality for campaign finance.
LIGHTFOOT’S TENURE HAS BEEN MARRED by fears about crime rates and feuds between the mayor’s office and the local teachers and police unions. Her low approval ratings opened up the floodgates for eight challengers to enter the hotly contested race. This race includes Brandon Johnson, the Chicago Teachers Union and Working Families Party–endorsed candidate, and Paul Vallas, the former CEO of the Chicago Public Schools, who is backed by the police union and much of the city’s business community.
When García announced his candidacy this past November, he surged to the front of the pack largely due to his national profile and name recognition in the city, having only narrowly lost a mayoral bid to former city boss Rahm Emanuel in 2015.
Lightfoot dipped into her war chest to clip his wings. In a round of ads beginning in January, Lightfoot’s campaign dubbed García a “crypto crook,” pointing to the $2,900 Bankman-Fried donated directly to García’s congressional campaign. More consequentially, Bankman-Fried’s political action committee Fight for Our Future also spent $150,000 for mailers and other promotional materials on behalf of García, even though he ran practically uncontested.
Critics paint the FTX cash as an attempted quid pro quo in exchange for favorable regulatory treatment; García sits on the powerful House Financial Services Committee. García initially gave the $2,900 in funds to a charity this December and stepped down from the Financial Services Committee voluntarily; yesterday, he complied with a request from lawyers from FTX, which is currently in bankruptcy, to return the contributions to repay creditors.
Erin Hooley/AP Photo
Chicago Mayor Lori Lightfoot speaks during the candidate forum on January 14th.
In a public statement, García’s campaign said that Mayor Lightfoot is “resorting to more lies and desperate attacks … Lori knows Chuy has consistently fought corruption. It’s why she begged for his endorsement in 2019.”
Lightfoot’s strategy is clear-cut. In elevating the crypto ties, Lightfoot aims to undercut 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 field of candidates,” said Dan Cohen, an independent political strategist in the city.
But less than a year ago, in May of 2022, Mayor Lightfoot stood alongside FTX’s president of U.S. 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 gaggle, Lightfoot praised the company for choosing Chicago and lauded 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 world of crypto so they can take ownership and control of their own financial destiny,” the mayor said.
Though 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 policy advisers to court the company, an unusually high priority for a single economic development project.
In recent years, Chicago has rebranded itself as a crypto hub to offset other economic losses. Under Lightfoot, Chicago hemorrhaged longtime employers, notably Boeing’s headquarters, which moved to Virginia the same week FTX arrived. This summer, the financial titan Citadel dealt a blow to the city by leaving for Miami due to expressed concerns about downtown crime.
Attracting fintech firms had become a priority for the city dating back several years, but reached its apex during Lightfoot’s tenure. According to a World Business Chicago report, the city drew $4.6 billion in investments to its fintech ecosystem in 2021, more than double what it received the previous year.
As a longtime financial center that pioneered commodity and options trading, Chicago’s pivot to cryptocurrency seemed like a logical step to 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.
“There was a coalition that doesn’t often emerge in Chicago politics of downtown business and financial elites and the progressive anti-bank, anti–financial institution crowd on the other hand coming together and saying crypto could 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 HQ as part of the city’s revamp. At FTX’s HQ launch, Lightfoot and FTX executives announced that the company would donate $1 million to the nonprofit 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 low-income Chicagoans in collaboration with various private partners, including EAT. Though separate from the FTX funding for EAT, city officials treated the joint programs as a partnership at the time.
Deputy Mayor of Economic and Neighborhood Development Samir Mayekar said: “How can Web3 really be relevant in the lives of people on the South and West side as an 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.’”
John Minchillo/AP Photo
FTX founder Sam Bankman-Fried departs Manhattan federal court in New York, February 9, 2023.
The collapse of FTX in November left the EAT UBI program without more than half of its remaining funding. Since then, the city has distanced itself from the partnership, claiming it was not party to the agreement, according to a spokesperson from the city.
However, that doesn’t mean the city has stopped promoting its homegrown crypto industry. In December, after Sam Bankman-Fried’s arrest, the mayor’s office told the Chicago Sun-Times that fintech was greater than just FTX and “the entrepreneurial ecosystem in Chicago comprises over 300 companies.”
Both the city government and its financial department are currently listed as creditors on FTX’s recent bankruptcy filing, though the city says it doesn’t have any direct exposure.
“The city doesn’t have any of its own funds managed under the treasurer’s office or pensions in cryptocurrency,” a spokesperson for the city confirmed to the Prospect. The spokesperson did not clarify why it remains a creditor on the bankruptcy filing.
IN CHICAGO, CRYPTO IS NOT an immaterial issue. Voters may not know Sam Bankman-Fried by name, but many have been burned by the assets it facilitated on the exchange. According to documents obtained in a Freedom of Information Act request by the Chicago Reader, over 2,100 residents in Chicago alone submitted complaints to the Federal Trade Commission about crypto scams, and testified that they lost close to $45 million.
As far as the issue pertains to the current mayoral race though, García has suffered the greater cost for his association to Bankman-Fried. After Lightfoot’s advertising blitz, García dropped in the polls by as much as ten points by some estimates.
“Lightfoot drained a lot of cash to go negative on Chuy but they’ve clearly hurt his campaign,” said Frank Calabrese, a research and public-policy analyst for Cook County government as well as a political consultant.
In striking first on crypto, Lightfoot made it challenging for García to return fire on her own record without calling more attention to the issue. Instead, García hit back at Lightfoot on public safety, urging for a greater police presence on the city’s streets. Though crime is a top concern for voters, elevating public safety as a top concern may push more voters to Paul Vallas, the police union’s choice, who received a donation from an officer implicated in the shooting of Laquan McDonald.
Even García’s core base of support among Latinos, who make up almost 30 percent of the city, could 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.
Though Lightfoot’s attacks have exacted a cost on García’s candidacy, they haven’t exactly worked to her advantage either. Lightfoot does not appear among the top two candidates in recent polls. The “crypto crook” label has worked with some progressives, but many of those voters have likely moved over to Brandon Johnson’s camp, who is surging recently, instead of the incumbent mayor.
If nobody reaches 50 percent, which is likely in the packed field, the top two advance to the general election. Lightfoot and García now both risk being left out of that race.
With three more weeks until the primary, the race is a dead heat. The effectiveness of Lightfoot’s ads offer a cautionary tale to other progressives tied up in the crypto barrage about the potency of the line of attack.
