Mixing the Political and the Personal: Trump’s Swap Scheme and Crypto Reserve

The conflicts of interest can’t be ignored.

This is the fourth in a series of columns on President Trump’s cryptocurrency venture. See Part One, Part Two, and Part Three.

E arlier in this series, I illustrated that once President Trump was elected last November, investments in his cryptocurrency enterprise, World Liberty Financial (WLF), zoomed to astronomical heights: from just $2.7 million shortly before the election to $367 million today. Its main cryptocurrency token, which functions analogously to stock, is $WLFI; on October 15, during the tense final days of the 2024 presidential campaign, Trump took time out to announce that the tokens were now available for sale — using his X/Twitter account with its (now) 105 million followers. It appears that the offer has been viewed over 17 million times (and X was not the only platform from which it was hyped).

Nothing better attests to the investors’ conceit that enriching Donald Trump personally will yield favorable exercises of government power. The mountain of money exceeded even the expectations of the president’s enthusiastic WLF partners, who’d said they were hoping to come in at around $300 million when the company was rolled out in September.

And who are the partners? It’s a motley crew. Trump’s elder sons, Don Jr. and Eric, have become players and high-profile cheerleaders in the crypto space. For the World Liberty Financial project, their day-to-day tenders are Zachary Folkman and Chase Herro.

As the New York Times details, Folkman, known as “ZMoney,” used to run a company “tutoring forlorn men on how to pick up women.” Herro dabbled in marijuana and did a short stint in a Wisconsin jail. They’ve partnered on various quick score ventures (including an attempt to, er, clean up on colon cleanses). That prepared them for the topsy-turvy of the crypto biz, in which, prior to WLF, their success was what the Times generously describes as “uneven.” One start-up cryptocurrency, TerraUSD, collapsed, “erasing billions of dollars in wealth.” Less than a year ago, another venture, “Dough Finance,” fell victim to a $2 million cyber-theft.

Folkman and Herro are friends of Zach Witkoff, another WLF stakeholder. As noted in the previous post, he is the son of Steve Witkoff, President Trump’s longtime friend from New York real estate circles and, now — speaking of uneven success — the White House’s global troubleshooter. It was evidently the senior Witkoff who introduced Folkman and Herro to the Trumps after meeting them through his son.

The Swap Scheme

The pair were the hook for the Times’ blockbuster April 29 story on the Trump crypto venture. It focused on what I’ll call “the swap scheme.” This was publicly pitched by WLF as an exercise in crypto altruism — “taking care of your brother in the space,” as Herro described it at a conference in New York City. The idea was to promote start-up cryptocurrencies by a mutual investment arrangement: WLF would buy a start-up’s coin and the start-up would buy $WLFI, with the announcement of the swaps giving the new players exposure that would increase the value of their crypto.

What wasn’t disclosed, however, was WLF’s premium. The start-ups were expected to purchase between $10 million and $30 million in $WLFI, while the Trumps’ company would buy a smaller amount of the start-up’s coin — sometimes 20 percent less. That became WLF’s profit. In essence, the start-ups were paying the Trumps and their associates to bask in president’s power and celebrity. The public would assume WLF had agreed to enter the swap after a thorough investigation of the counterparty. In point of fact, WLF was being richly compensated to enter the arrangement.

For those who closely followed Trump’s pre-election legal travails, the swap scheme is reminiscent of a class action suit dismissed in late 2023. Enrollees in a training program for small business owners, after losing their small investments, complained that it was Trump’s hyperbolic endorsements that had persuaded them to buy in — something they wouldn’t have done, they claimed, had it been disclosed that Trump was being paid to endorse the program.

In urging the swaps, WLF’s pitch to the start-ups was: “We’re like, we’re super close to Trump.” We have learned about the gambit’s details only because a number of the start-ups declined the offer and told the Times about it. The swap raised a goodly chunk of the $550 million WLF says it has reeled in since starting cryptocurrency operations.

If you read the fine print of the company’s structure, you find that President Trump’s family owns 60 percent of the business (through a company managed by his elder sons) and is entitled to “75% of $WLFI  token sale proceeds” (there are certain agreed upon deductions). The Trumps were also given 22.5 billion of the $WLFI coins when WLF started, and those holdings increase in value if the coins in circulation do. As of late April, the estimated value was $1.1 billion.

Not bad for a venture that was barely on the map six months ago.

The President’s Cryptocurrency Reserve . . . ‘You Can Thank Me Later’

As he seamlessly stitched the role of WLF’s chief crypto advocate to the office of the nation’s “crypto president,” Trump latched on to the notion of having a “strategic Bitcoin reserve and a U.S. digital asset stockpile,” which he unilaterally decreed by an executive order on March 6. David Bahnsen has described the concept of a reserve fund as “laughably stupid.” Given cryptocurrency’s shortcomings as a currency, particularly its volatility, there’s a lot to be said for that assessment.

Nevertheless, as Jim Geraghty explains, at least for now, the reserves of Bitcoin and other digital currencies consist only of assets the government already owned through criminal and civil forfeitures. That is, the president has so far “stockpiled” in “reserves” only what was already stockpiled in other executive agency accounts.

The move is thus more flim-flam than policy change. I assume that’s why the president felt confident enough to “establish” crypto reserves by executive order, rather than ask Congress to authorize them legislatively. There has been no expenditure of taxpayer money, nor any assumption of public debt to obtain crypto coins for the reserve. On that possibility, the sage Hoover Institute economist and cryptocurrency naysayer John Cochrane is blunt: “Borrowing more to ‘invest’ in bitcoin is about the worst idea I’ve heard.”

Of course, there are always other bad ideas swirling about. Like having the president’s son give investment advice about a cryptocurrency, the value of which is tied to the president’s policy choices — while that said son is heavily invested in the said cryptocurrency through a company that derivatively benefits the president, its “chief advocate.”

On February 3, 2025, the end of the second week of his father’s second term, Eric Trump, who has 5.7 million followers on X, posted the following there: “In my opinion, it’s a great time to add $ETH.” That’s the symbol for Ether, the publicly traded digital coin of the Ethereum platform. Ether trails only Bitcoin as an established cryptocurrency.

The president’s son wasn’t done; he added, “You can thank me later.” Obviously, that last sentence could have been construed to suggest that Eric had inside information about some imminent development that would drive the price up; he thought better of it and quickly deleted that sentence, but left standing the recommendation to buy Ether’s coin.

Eric Trump had good reason to be well versed in Ether. As we’ve seen, WLF buys various cryptocurrencies for investment purposes. From the time of its inception shortly before the 2024 election into early March 2025, according to Arkham, a crypto data firm whose research was reviewed by the Times, WLF had bought an eye-popping $240 million worth of Ether’s digital coin. Prior to Eric’s recommendation, the value of that coin had been in sharp decline; following his comments, it rose by 25 percent, recouping its recent losses.

Then — who’d have predicted this? — came a development that would drive Ether’s price up dramatically. On March 2, President Trump announced his creation of a U.S. crypto reserve. Trump posted on Truth Social, “Obviously, BTC [i.e., Bitcoin] and ETH [i.e., Ether], as other valuable Cryptocurrencies, will be the heart of the Reserve. I also love Bitcoin and Ethereum.”

Following the president’s announcement, Ether’s coin surged more than 13 percent in value. As a result, the value of WLF’s accumulated stock of Ether rose by $33 million. It was a fleeting bump. On April 2, the president proclaimed “Independence Day” and the resulting crazy quilt tariff policies roiled markets globally, including the market for cryptocurrencies.

Given that crash, some will say this is much ado about nothing. Unless an investor bought Ether on Eric’s recommendation and then dumped it while the price was temporarily soaring, it was not “a great time to add $ETH.” There are probably few such investors — especially given that WLF, of which Eric Trump is a principal, sold off a significant amount of its Ether stash at a $125 million loss in early April. Notwithstanding the spike after the president’s announcement that Ether would be a principal component of the U.S. crypto reserve, the price of Ether had fallen by nearly 40 percent.

Like many assets, Ether has rebounded somewhat in the past month as Trump bit back on the tariffs. In fact, after Bitcoin, too, slumped in April, it hit over $100,000 per coin in early May, a three-month high.

Still, putting aside the rollercoaster ride and whatever contribution to it was made by Eric Trump’s commentary in the lead up to the president’s crypto reserve announcement, the blatant conflicts of interest can’t be ignored.

As a widely traded digital currency, Ether is regulated by the Commodities Futures Trading Commission. Under the CFTC’s regulations, it is illegal to engage in manipulative practices that affect commodities prices. In 2022, for example, the CFTC successfully prosecuted Jimmy Gale Watson in what it described as a “digital asset pump-and-dump scheme.” As legal analyst Peter Y. Malyshev explains, Watson and a partner used mass media to “pump up” the market in specific cryptocurrencies, “issuing recommendations to buy without disclosing that they had built up their own inventory of the cryptocurrencies,” and then commenced an aggressive advertising campaign that significantly inflated the price.

Here, by contrast, there is less evidence of concealment and profit. It was well known that WLF had bought lots of Ether, and there was reporting that President Trump was contemplating a crypto reserve before he announced it. And while that announcement ignited a surge, the price quickly plummeted and it appears that WLF, and thus the Trumps, lost money.

That said, the facts remain that, when Eric Trump publicly recommended Ether, it had the effect of bolstering his company’s big position, which had significantly declined in value (from around $3,250 at the start of the year to $2,880); and with Eric having been very public about how his father’s presidency would be a boon for cryptocurrencies, his assurance that investors would “thank me later” for stocking up on Ether — coming just a month before the president touted Ether as part of a new national crypto reserve — is just the sort of pattern that rivets the attention of regulators.

Of course, that’s only if there are regulators. Since the president took office, his Justice Department has shut down its cryptocurrency enforcement unit, proclaiming that Biden era “regulation by prosecution” is over. And as we’ll see, other regulatory agencies are retreating from crypto scrutiny.

Maybe that’s as it should be. To repeat what I contended earlier in this series, regulation by prosecution is a terrible practice. The laws should be clear, they should be written by Congress (not prosecutors and administrative agencies), and market participants should be on unambiguous notice of what is prohibited. But even if there is objectionable vagueness in our regulations, mixing personal financial interests with political policymaking is obviously wrong. There is nothing confusing about that. It’s basic.