Inside the Florida congressional campaign running through a crypto wallet

South Florida entrepreneur Michael Carbonara has been investing most of a massive self-funded campaign account into cryptocurrencies — shuffling money between cash and digital currencies while pushing against the legal limits of federal campaign finance laws.

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Carbonara’s novel campaign investment methods have given his campaign some windfalls. He invested about $95,000 into the cryptocurrency Ethereum in June of last year. Two months later, it was liquidated into campaign cash at a value of $170,000, marking an almost $75,000 return.

He said that investment strategy is part of his larger campaign message promoting digital currencies. “I wanted to show people that this was a possibility,” he told the Miami Herald in an interview this week.

“Campaigns do invest in the stock market, they invest in treasury bills and it’s not uncommon for campaigns to generate passive revenue or income based on the idle cash sitting there. So this was just one vehicle and I was trying to show that this was something that could be done.”

Politicians frequently invest their campaign funds and report returns on those investments, but Carbonara’s method is largely unheard of.

“It’s rare, but not uncommon for politicians to have investment income. It’s extraordinarily rare for it to be in a crypto vehicle,” said Michael Beckel, director of money in politics reform at the bipartisan think tank Issue One.

But the $2.2 million his campaign has reported so far in investments in digital currencies has also created some inconsistencies and prompted questions of self-dealing since he’s using a company where he was once CEO to process all his transactions.

For every transaction into and out of the digital wallet, Ibanera, the financial technology company he once led, took a fee.

Over the course of the campaign cycle, Carbonara’s campaign paid at least $21,000 in investment fees to Ibanera across 16 transactions, including about $8,600 before he stepped down as CEO last October, campaign finance reports show.

A candidate using their own business for campaign purposes is allowed under federal election law as long as the product is necessary and it is purchased for fair market value, according to Craig Holman, a campaign finance expert and ethics lobbyist for the consumer watchdog group Public Citizen.

“In this particular case, investing campaign funds in cryptocurrency does not appear to be necessary for campaign purposes,” Holman said, adding that the FEC should “scrutinize” whether the fees paid to Ibanara were at fair market value.

Carbonara said he’s not worried about self-dealing questions because his campaign finance is run through a third party to ensure he works with “only reputable vendors,” including his former company.

“The amount of compliance costs probably exceeded any revenue that Ibanera generated because there’s very few transactions,” he said, adding that the $21,000 in fees doesn’t also amount to revenue for Ibanera because of the way it runs market transactions.

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It’s not the only recent scrutiny of Carbonara’s candidacy. A Michigan data center he built to mine bitcoin is now facing a lawsuit trying to shut it down for the noise.

Reporting by WLRN about that lawsuit was later removed from Google search results after a bogus copyright complaint was filed, one of a string of such complaints about negative articles about him. Carbonara insisted his campaign had no role filing those complaints.

Florida’s 22nd District — which includes parts of Broward and Palm Beach counties and stretches across the state to Marco Island — is one of the most closely watched seats in the country in determining whether Republicans maintain control of the U.S. House in November.

It has attracted a string of other Florida millionaires like Carbonara to also dump their own money into the race, making it the highest-funded congressional race in the state, with more than $18 million at play.

Almost a third of that money is from Carbonara, from the look of federal campaign finance reports.

But that appearance is partly due to the way those novel crypto investments are reported, artificially boosting his publicly reported campaign receipts. About $2 million of the almost $6 million he’s reported raising is being reflected twice in the total: once he added it to the campaign, and again when he pulled it back out of a crypto wallet, according to Carbonara.

It’s not the only inconsistency with Carbonara’s unusual crypto investment strategy.

In May of this year, Carbonara’s campaign invested $805,000 into a digital currency called USDC — whose value is pegged to the U.S. dollar. Three weeks later, the campaign converted $730,000 of that investment back in dollars.

Carbonara told the Herald it wouldn’t make sense for that transaction to represent a loss, as the currency is stable with the dollar, indicating some of the original investment could be remaining in the crypto wallet.

Campaign finance experts said the flow of funds is unusual, but doesn’t run afoul of the law as long as all the money in the crypto wallet is originating from the candidate — who can give unlimited amounts to his own campaign — and not being used to mask contributions over the legal limit.

But was crypto a necessary enough campaign purchase to justify using his own company? Holman said, “That is up to the FEC and Carbonara’s voting constituency to judge.”

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