Cryptocurrency exchange FTX Trading had no reliable financial statements, let senior executives redirect customers’ funds and didn’t properly document transactions, its new CEO plans to tell Congress on Tuesday.
John J. Ray III, who stepped in to lead FTX after it filed for bankruptcy a month ago, is set to testify before the House Financial Services Committee at 10 a.m. Eastern Time. FTX founder Sam Bankman-Fried is also scheduled to speak.
Bankman-Fried gave an interview last month at the New York Times Dealbook summit in which he claimed not to know the extent of FTX’s problems and said that, while he made mistakes, he didn’t commit fraud.
“Unsophisticated individuals”
Ray has called FTX’s management the worst he’s ever seen in a 40-year career that includes overseeing the Enron bankruptcy. In prepared remarks shared by the committee on Monday, he said FTX collapsed because the “very small group of grossly inexperienced and unsophisticated individuals” who were running the company “failed to implement virtually any of the systems or controls that are necessary for a company that is entrusted with other people’s money or assets.”
Among those failures, which Ray summarizes: FTX Group’s computers allowed senior executives to go into customers’ accounts and redirect assets; Alameda, the company’s research arm, could borrow unlimited amounts of money from FTX; nearly 500 investments made with FTX Group lacked transaction documentation; the company didn’t provide audited or reliable financial statements; and FTX didn’t have financial and risk-management personnel.
The testimony also says FTX lent over $1 billion to insiders and that the company went on a “spending binge” late last year, buying $5 billion worth of companies that Ray said are worth “only a fraction” of that amount.
FTX, once the second-largest crypto exchange in the world, raised almost $2 billion from investors over three years before it suddenly collapsed in November. The Bahamas-based company shocked the crypto industry when it declared Chapter 11 bankruptcy last month. Bankman-Fried, who has been giving interviews from the Bahamas, is under investigation in the U.S. and abroad for possible securities violations.
FTX owes at least $3 billion to creditors, according to bankruptcy filings.
