Current FTX CEO John Ray III laid the blame for the cryptocurrency exchange’s collapse on founder and former chief executive Sam Bankman-Fried and his top executives, telling Congress they gambled with customers’ money without any safeguards to protect their investments.
Ray testified before the House Financial Services Committee Tuesday as furious lawmakers have demanded explanations and promised to make heads roll after the company lost billions of dollars of customers’ money.
“The FTX group’s collapse appears to stem from 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 said.
His opening statements stuck fairly close to his written testimony, which was provided to the committee beforehand.
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Ray – who took over following Bankman-Fried’s resignation and has handled several major corporate collapses including Enron – said in his testimony to the committee 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 whatsoever.”
The new FTX CEO said his investigation is still ongoing but has found several “unacceptable management practices” so far that the “very small group of grossly inexperienced and unsophisticated individuals” running the exchange engaged in.
The seasoned restructuring officer revealed that senior FTX management had access to customer assets they were able to redirect, held hundreds of millions of dollars of crypto access absent of security controls or encryption, and pointed to “[the] absence of audited or reliable financial statements.”
Ray acknowledged that his new leadership team has been in close contact with U.S. authorities and lawmakers and that questions remain regarding what happened with FTX and its crypto hedge fund, Alameda. However, he said that what they know already is that FTX was gambling with customer assets by commingling them with Alameda’s and engaging in margin trading.
Further, Ray revealed, the FTX group went on what he called “a spending binge” in late 2021 through this year shelling out roughly $5 billion on an array of business and investments that “may be worth only a fraction of what was paid for them.” He also wrote that “loans and other payments were made to insiders in excess of $1 billion.”
Ex-CEO Sam Bankman-Fried had agreed to testify remotely before the committee, but was arrested in the Bahamas on Monday evening. He faces charges from federal prosecutors in New York and another fraud complaint from the Securities and Exchange Commission (SEC).
The SEC complaint, filed Tuesday, accuses Bankman-Fried of carrying out “a scheme to defraud equity investors in FTX Trading Ltd,” his cryptocurrency trading platform. The court filing describes the alleged operation as “a massive, years-long fraud.”
FOX Business’ Breck Dumas and Anders Hagstrom contributed to this report.
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