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Michigan Congressman Reaps Windfall Profits From His Cryptocurrency Investments
Washington – Michigan U.S. Rep. Shri Thanedar used his congressional campaign committee to make a big bet on cryptocurrency this winter – and so far, he’s promised to pay big dividends.
The Detroit Democrat, a millionaire businessman who has largely self-financed his campaigns, took $3.7 million in cash from his campaign this year and used the political committee to invest the money in an exchange-traded fund (EDF) cryptocurrency called Grayscale Bitcoin ETF (GBTC).
In just three months, the Bitcoin investment generated $1.3 million in profits and interest, which he reported in his campaign finance report last quarter, a return on investment of approximately 35 % on the investment of Thanedar’s campaign committee. The campaign made five purchases of GBTC between January 3 and the end of March, during which the fund’s value increased by 82%.
Investing campaign money is generally legal under federal election regulations, which allow political committees to transfer funds for investment purposes to other accounts. Invested funds must simply be returned or transferred to the campaign account before they can be used to make campaign expenses in accordance with Federal Election Commission rules.
Thanedar said he hopes to cash in when he needs money for his Democratic primary campaign, starting in June. In the meantime, Thanedar said, one of the benefits of crypto investing is that it can avoid long hours of searching for dollars from campaign donors.
“I can do a lot of good work if I don’t have to make these calls,” Thanedar told the Detroit News.
Thanedar said he came up with the idea after learning that a few other candidates were investing, including the Senate campaign of U.S. Rep. Adam Schiff, Democrat of California.
Although investing campaign funds is allowed, it is relatively rare for candidates, in part because of the financial risk and costs involved, campaign finance experts said.
“If you’re dealing with a type of investment vehicle that’s accessible to everyone, you can usually do that,” said Brad Smith, a Trenton native and former chairman of the Federal Election Commission. “It’s not common, partly because you can lose all your money. But it’s possible.”
Candidates don’t invest more often because they’re eager to spend money as soon as it comes in to fund their campaigns and other expenses, said Smith, who teaches election law at the University’s law school. Capital University in Columbus, Ohio.
“When you’re running for office, you don’t want to get into hiring investment managers,” Smith said.
Additionally, many candidates likely don’t want to waste their donors’ contributions, especially on a volatile cryptocurrency like bitcoin, experts say.
However, the calculation may be different for self-funded candidates. Thanedar has loaned his campaign more than $3.3 million since December, with much of what was invested coming from his own pocket. It closed the quarter reporting cash reserves of more than $5 million.
Thanedar faces primary challenges from former state Sen. Adam Hollier and Detroit City Councilwoman Mary Waters, both of Detroit. Last election, Thanedar spent $6 million on his first campaign for the United States House of Representatives for Michigan’s 13th District in 2022.
More: Congressional Black Caucus chair backs Hollier over Rep. Thanedar for Detroit seat
In his personal financial disclosure report filed in December, Thanedar listed that he held cryptocurrency Bitcoin valued at between $100,000 and $250,000 among his investment holdings.
“Crypto is a new type of investment income, so I wouldn’t be surprised if we see more of it in campaigns,” said Stuart McPhail, director of campaign finance litigation at the non-profit organization. partisan Citizens for Responsibility and Ethics in Washington.
Grayscale Bitcoin Trust is what is called a Bitcoin spot exchange traded funda type of ETF that tracks the price of bitcoin by holding a large amount of cryptocurrency on behalf of shareholders (i.e. shareholders do not directly hold the cryptocurrency).
Lawyers said the Thanedar campaign will likely have to pay taxes of up to 21% on any investment income because money from investment sources likely won’t be considered related to the tax-exempt functions of the campaign.
“So if the campaign has taxable income, it will pay tax on the gross amount of interest or dividends. There may be deductions allowed, but generally there will be tax payable on this amount,” said Heidi Abegg, attorney. in Washington, DC, who represents nonprofit organizations in compliance matters and also practices campaign finance law. “This will be due after the close of their fiscal year.”
There is a flat tax rate for candidate committees, Abegg said. The tax for the primary campaign committee of a candidate for the United States House of Representatives would be calculated by multiplying taxable income by the corporate tax rate, which is 21%. The campaign could deduct all costs related to the investment, she added.
“If you’re self-financing, you’re more likely to invest in these types of vehicles than if you’re pooling money from many different people,” Abegg said. “But you really don’t see that very often.”
mburke@detroitnews.com