Sam Bankman-Fried, the founder and former CEO of failed cryptocurrency exchange FTX, helped 1,500 Bahamian investors withdraw $100 million from their accounts while other clients around the world were locked out, according to reports. The company’s new chief executive said he testified before a House committee at a hearing Tuesday.
FTX CEO John Ray III, who has guided dozens of companies, including Enron, through bankruptcy reorganizations, called FTX’s collapse one of the worst corporate failures he’d ever seen — “a paperless bankruptcy” due to an “unprecedented lack of documentation”.
For nearly four hours, Wray didn’t take a break as he told lawmakers he found a lack of oversight and financial control after taking over FTX a month ago. He found a loan in which Bankman-Fried was both issuer and receiver. There is a fee for emoji approval. FTX does not have an accountant. For record keeping, employees manage FTX’s finances using QuickBooks, a prepackaged software typically used by small and medium businesses.
“There’s nothing against QuickBooks,” Ray said. “It’s a really good tool, it’s just not for a multi-billion dollar company.”
At its peak, FTX had a market cap of over $30 billion.
Notably absent from the House Financial Services Committee hearing was Bankman-Fried, who was arrested in the Bahamas hours before he was scheduled to testify. The arrest came at the request of the U.S. government, which on Tuesday announced criminal charges against Bankman-Fried, including wire fraud and money laundering.
The timing of Bankman-Fried’s arrest frustrated many committee members. Rep. William Timmons, R-S.C., called the timing “weird,” adding that, as a former prosecutor, he couldn’t imagine why any prosecutor wouldn’t want “hours of cross-examination of the target of the investigation by Congress.” Help file a case.
FTX filed for Chapter 11 bankruptcy protection on Nov. 11, when the company ran out of funds after the cryptocurrency amounted to a bank run. The collapse of the cryptocurrency’s second-largest exchange has captured the world’s attention and sparked concern in the cryptocurrency industry that the pain could spread. Ray estimated that about $8 billion in customer funds were lost.
Some clients in the Bahamas, where FTX is based, were able to get some money back, Ray said. That’s because the Bahamian government and Bankman-Fried agreed to let them withdraw funds from FTX, while clients in other countries were barred from doing so, Ray said.
Ray, who took over FTX on Nov. 11, told the committee that FTX’s problems were the culmination of months, if not years, of poor decision-making and poor financial control.
“This didn’t happen overnight or in a week,” he said.
However, Ray didn’t answer many questions about what regulations could prevent FTX from collapsing. Instead, he focuses on how unusual FTX is — there is no board, no real structure to prohibit consumer money invested in FTX from being diverted to Bankman-Fried’s hedge fund, Alameda Research, for other investments or big purchases, without the original Investor knowledge.
In his prepared remarks, Ray painted a picture of companies operating with little oversight.
“The collapse of FTX Group appears to have resulted from the absolute concentration of control in the hands of a very small number of extremely inexperienced and immature individuals who failed to implement virtually any system or control necessary for a company entrusted to others. money or assets,” Ray said.
In interviews after FTX filed for bankruptcy protection, Bankman-Fried acknowledged that the company lacked proper financial controls and corporate governance, but denied any fraud.
U.S. prosecutors and financial regulators disagree with that assessment. An indictment unsealed Tuesday charged Bankman-Fried with a string of financial crimes and campaign finance violations, alleging he played a central role in FTX’s swift collapse and concealed its problems from the public and investors. The SEC said Bankman-Fried illegally used investors’ funds to buy real estate on behalf of himself and his family.
Ray’s comments backed up those allegations.
“It’s just old-fashioned embezzlement, taking money from other people and using it for your own purposes,” he said. “It’s not complicated at all.”
Bankman-Fried’s attorney, Mark S. Cohen, said Tuesday that he “is reviewing these allegations with his legal team and considering all of his legal options.”
Contributed by reporter Ken Sweet.