John Ray III, the current CEO of FTX, testified before Congress that the cryptocurrency exchange failed due to the reckless gambling of Bankman-Fried and his top executives with customer funds.
After approximately $10 billion in customer, funds went missing due to Bankman-Fried’s mismanagement, FTX was forced to file for Chapter 11 bankruptcy protection. After losing customers billions of dollars, legislators have been demanding answers and threatening to make heads roll. On Tuesday, Ray testified before the House Financial Services Committee.
According to Ray, the FTX group’s downfall can be traced back to “an absolute concentration of control in the hands of a small group of grossly inexperienced and unsophisticated individuals who failed to implement virtually any of the systems or controls that are necessary for a company entrusted with other people’s money or assets.”
Ray, who took over after Bankman-Fried resigned and has dealt with several major corporate collapses, including Enron, said in written testimony that nearly all the cases he has handled alleging criminal activity “share common characteristics,” but “never in my career have I seen such an utter failure of corporate controls at every level of an organization, from the lack of financial statements to a complete failure of any internal controls or governance what have you.”
The new CEO of FTX stated that while his investigation is ongoing, he has discovered several “unacceptable management practices” that put customers at risk of significant losses.
According to the seasoned restructuring officer, top-level FTX management had access to customer assets they could reroute, held hundreds of millions of dollars in crypto access without security controls or encryption, and allowed Alameda to borrow funds from FTX for its trading and investments “without any effective limits whatsoever.”
Ray explained to lawmakers that the company’s “fundamental challenge we face is we’re, in many respects, starting from near zero” regarding the corporate infrastructure and record-keeping that one would expect in a multibillion-dollar corporation.
Despite this, Ray stated that the investigation into the events was still in a “very preliminary stage,” and that it could be some time before the full extent of the events was known.
According to Ray’s testimony, what is known is that FTX was gambling with customer assets by blending them with Alameda’s and engaging in margin trading.
Moreover, Ray disclosed that the FTX group went on a “spending binge” from late 2021 through this year, spending roughly $5 billion on a wide variety of businesses and investments that “may be worth only a fraction of what was paid for them.” He also noted that “loans and other payments were made to insiders in excess of $1 billion.”
He also told the legislators that FTX’s sloppy record-keeping and the ongoing investigations by law enforcement would limit his ability to answer their questions.
The Democratic chairwoman of the House Financial Services Committee, Representative Maxine Waters of California, blasted FTX for its “total disregard” for its customers, expressing her “deeply troubled” at learning “how common it was for Bankman-Fried and FTX employees to steal from the cookie jar of customer funds to finance their lavish lifestyles.”
Unlike Bankman-Fried, whose media appearances and tweets since FTX’s collapse McHenry said “are no substitute for the facts,” ranking member Patrick McHenry, R-N.C., praised Ray as a “reliable witness.”
According to McHenry, “Bankman-Fried is nothing new,” and he is among the most notorious American con artists in history. “It looks like the same fraud we’ve seen before; they’re just using a different tool this time.”
Before his arrest on Monday night in the Bahamas, Bankman-Fried had agreed to testify remotely before the committee. The SEC has filed a fraud complaint against him, and federal prosecutors in New York have filed charges against him (SEC).
On Tuesday, the SEC filed a complaint against cryptocurrency trader Bankman-Fried, accusing him of engaging in “a scheme to defraud equity investors in FTX Trading Ltd.” The operation was “a massive, years-long fraud,” according to the court document.
Prosecutors in New York have also indicted Bankman-Fried on eight counts of conspiracy and fraud.
Waters expressed optimism that Bankman-Fried arrest would mean “he will be held accountable for the fraud he has committed and the harm he has caused.”
Marine Corps Veteran-turned-national-tv-personality Eric Mitchell is a world leading expert in sports media, regularly appearing on the world’s largest outlets from BBC, MSNBC, Fox News, Bloomberg, CNN and more. His signature blend of snark and industry expertise landed him columns at none other than RollingStone, GritDaily, PopWrapped, Disrupt — and most recently — Editor in Chief at NFT Today Magazine. When he’s not making media appearances or running his empire at LifeFlip Media, he can be found entertaining his thousands of loyal followers on social media through his authentic filter-free content.