Ray: ‘I don’t trust a single piece of paper in this organization’
The American House Financial Services Committee held a hearing on FTX’s collapse on Tuesday morningjust hours after the crypto exchange’s former CEO Sam Bankman-Fried was arrested in the Bahamas.
Bankman-Fried was originally scheduled to testify at the hearing, a performance that was scuttled after he was taken into custody by Bahamian authorities in light of charges brought by the U.S. Securities and Exchange Commission, the Commodity Futures Trading Commission and the Southern District of the Ministry of Justice. from New York.
John J. Ray III, CEO of FTX for four weeks, was the sole witness for the hearing as Bankman-Fried Reportedly appeared before a Bahamian court for his arraignment.
The four-hour hearing covered a lot of ground and left many questions unanswered, but several parts stood out from Ray’s testimony. Below we have collected points that matter. Given that we assume you weren’t able to follow the whole session live, you can write off our notes:
- There are no exact figures yet on the extent to which funds have been misused, but it is “more than $ 7 billion”.
- There were 7.6 million accounts on FTX and 2.7 million accounts in the US, but it’s unclear how many lost money.
- Over $1 billion in crypto assets have been recovered and secured. The new FTX leadership group has also secured “cash” in its bank accounts. But it will take weeks if not months to secure all assets, he added.
- Ray confirmed that client funds were deposited directly into Alameda Research, unlike FTX accounts.
- The activities of the FTX group were not separate from sister company Alameda; they operated as one company. As a result, there is virtually no distinction between the companies’ activities and who controlled those activities.
- Discussing Bankman-Fried receiving a $1 billion loan from Alameda, Ray said, “The loans given to Mr. Bankman-Fried were not just one loan, there were countless loans. … There is no description of the “What the purpose of the loan was. In one case, he signed on as both the lender and recipient of the loan. We have no information at this time about the purpose or use of those funds. That is part of our investigation.”
- The use of FTX capital at Alameda was not incidental or accidental. “Alameda’s operation really depended on the use of customer money. That’s the big glitch here. Funds from FTX.com, the exchange for non-US citizens, those funds were used at Alameda to make investments and other disbursements,” Ray said.
- Alameda was, in fact, a customer of FTX.com, and Bankman-Fried owned 90% of Alameda, Ray said.
- When asked if FTX had significant risk management systems in place, Ray said, “There were virtually no internal controls and no segregation whatsoever.” Later at the hearing, Ray disclosed that there was no board overseeing FTX, other than Bankman-Fried. FTX, once valued at $32 billion, had no accounting or human resources department. However, it did have a legal department and employees with compliance titles, but no department they could call home.