Current FTX CEO John Ray III, an attorney overseeing the bankruptcy of the defunct cryptocurrency exchange, testified before the House Financial Services Committee on Tuesday after former FTX CEO Sam Bankman-Fried was arrested and charged with financial crimes.
FTX filed for bankruptcy last month after users discovered that the exchange was intertwined with the firm Alameda Research; both were controlled by Bankman-Fried and a group of amateur executives working from a luxury penthouse in the Bahamas. The disgraced entrepreneur was arrested on Monday by authorities in the island nation, where his companies were headquartered, under the expectation that American officials would request his extradition.
Ray, who previously managed the collapse of fraudulent energy company Enron, told lawmakers in his opening statement that he is working to “mitigate, to the greatest extent possible, the harm suffered” by customers and investors. He repeated earlier assertions that FTX was the worst failure of corporate controls he has witnessed in his entire career.
“Although our investigation is ongoing and detailed findings will have to await its conclusion, the FTX Group’s collapse appears to stem from the absolute concentration of control in the hands of a very 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 that is entrusted with other people’s money or assets,” he remarked.
Bankman-Fried was previously scheduled to testify before lawmakers. The disgraced entrepreneur now faces fraud and money laundering charges from the Securities and Exchange Commission, as well as other federal agencies. A copy of his testimony obtained by Forbes showed that the entrepreneur would have said “I f***** up” at the outset of his remarks. He has insisted during several media interviews that his company’s failure was due to his own incompetence rather than criminal actions.
Ray added that his team is attempting to implement corporate controls, such as accounting, cybersecurity, human resources, and risk management operations, while working “around the clock” to locate FTX assets, which may prove difficult due to the lack of record-keeping.
The attorney also noted that FTX executives embarked upon a “spending binge” over the past year, burning through as much as $5 billion on “a myriad of businesses and investments, many of which may be worth only a fraction of what was paid for them.” Bankman-Fried paid millions soliciting celebrities such as quarterback Tom Brady and investor Kevin O’Leary as brand ambassadors.
The hearing marked the second in Congress regarding the collapse of FTX and possible cryptocurrency regulations. Members of the Senate Agriculture Committee recently held a hearing with Commodity Futures Trading Commission Chairman Rostin Behnam on increasing federal oversight of the nascent industry.
House Financial Services Committee Ranking Member Patrick McHenry (R-NC) asserted on Tuesday during his opening statement that regulation is necessary for the continuation of a legitimate cryptocurrency sector. “It appears to be the same old-school fraud, just using new technology,” he said. “We have to separate out the bad actions of an individual from the good created by an industry and an innovation.”
Joseph Bankman and Barbara Fried, the parents of Bankman-Fried, have reportedly been staying with their son in the Bahamas. After Rep. Bill Huizenga (R-MI) asked whether the well-connected Democratic couple was involved with the company’s failure, Ray confirmed that his team is investigating them “as well as any other players.”
Ray added that accountants from Ernst & Young are examining whether FTX properly completed tax returns. “They are taking a comprehensive review,” he said. “They’re going backwards and starting with the earlier years.”