Crypto giant FTX's new CEO tore into 'inexperienced and unsophisticated' company founder Sam Bankman-Fried's handling of the company at a Congressional hearing on its implosion on Tuesday.
The House Financial Services Committee is investigating the multibillion dollar crypto firm, which recently collapsed after a $5 billion 'spending binge' the year before, its new CEO told lawmakers in his opening testimony.
John J Ray III was appointed to lead the company through bankruptcy after its founder stepped down in the wake of its implosion. Ray shepherded Enron through one of the largest American corporate demises in history.
He blamed the corporate destruction of FTX on the 'absolute concentration of control in the hands of a very small group of grossly inexperienced and unsophisticated individuals.'
Ray told lawmakers that of the dozen or so bankruptcies he's navigated companies through, FTX sticks out as 'highly unusual.'
'Literally no record keeping whatsoever,' he described the crypto giant.
The seasoned executive said employees communicated invoices and other financial documents through the workspace chat app Slack, and used Quickbooks accounting software internally.
'It’s a very nice tool - not for a multibillion dollar company,' Ray said.
Company founder Bankman-Fried was meant to appear in front of the committee on Tuesday but was arrested in the Bahamas the previous evening.
FTX Group CEO John J. Ray III waits to begin his testimony before a U.S. House Financial Services Committee hearing investigating the collapse of the now-bankrupt crypto exchange FTX after the arrest of FTX founder Sam Bankman-Fried, on Capitol Hill in Washington, U.S. December 13, 2022
Ray said he's shepherded roughly a dozen companies through bankruptcies, but that FTX's case was particularly 'unusual'
The 30-year-old billionaire is expected to be extradited to the United States. American federal prosecutors charged him with eight counts including money laundering and fraud.
Ray is leading a group of investigators working to recover clients' digital assets, over $1 billion of which has already been found, Ray told lawmakers. The company owes roughly $10 billion back to clients.
He confirmed to lawmakers on Tuesday that his team was sharing those findings with the Southern District of New York, where Bankman-Fried was charged.
Asked how FTX's sister firm Alameda Research could access client funds, Ray said, 'There was no oversight' and that 'money could move around' without detection.
Democrat Rep. Brad Sherman called the FTX founder 'a great big snake in the crypto Garden of Eden' but added that 'crypto is a garden of snakes.'
Democratic Rep. Brad Sherman said of FTX founder Sam Bankman-Fried, 'My fear is that we'll view Sam Bankman-Fried as just one big snake in a crypto Garden of Eden. The fact is, crypto is a garden of snakes'
During the hearing, Democratic Rep. Al Green took Bankman-Fried to task despite his absence over his claims that the mishandling of billions of dollars worth of digital assets was a 'mistake.'
'Dr. King reminded us that nothing in all of the world is more dangerous in the world than sincere ignorance and conscientious stupidity,' Green said.
However, he added later, 'I find it difficult to believe we are dealing with conscientious stupidity.'
'It seems to me you have to be rather talented to do the things that have been done, and do them successfully,' Green said. 'They just don’t emanate from ignorance and stupidity. And a lot of people have been hurt.
Ray was unable to pinpoint any one problem that led to the collapse, rather blaming an array of faulty decisions and a lack of sufficient policy barriers in place.
It’s really just the unlimited ability of those in control positions to borrow customer funds or take customer funds and deploy them for their own use,' Ray said. 'Really the misuse of funds, and it’s as simple as that.'
Committee chair Rep. Maxine Waters said in the hearing's opening, 'Just a few months ago, FTX was one of the largest cryptocurrency exchanges in the entire world...Today FTX is bankrupt, and possibly looted.'
She said she was 'troubled' to see 'how common it was for Bankman-Fried and FTX employees to steal from the cookie jar' of customer cash to 'fund their lavish lifestyle.'
Republican ranking member of the Committee U.S. Rep. Patrick McHenry (R-NC) and House Financial Services Committee Chair Rep. Maxine Waters (D-CA) talk before the start of Tuesday's hearing
Democrat Rep. Al Green said of Bankman-Fried's insistence that it was a 'mistake': 'I find it difficult to believe we are dealing with conscientious stupidity'
Lawmakers accuse the company's executives of misusing $10 billion in client funds while owing creditors 'at least $3 billion.'
Ranking member Rep. Patrick McHenry lauded Bankman-Fried's arrest as 'welcome news.'
'Bankman-Fried's play is nothing new, we've seen it before,' McHenry said. He compared the young billionaire to railroad barons of the 19th century and the same Enron scandal Ray oversaw years before.
Ray said the company 'failed to implement virtually any of the systems or controls’ needed for companies charged with handling client funds.
He stressed that his investigation was still in preliminary stages, but has gathered enough information to know FTX 'exposed customer funds to massive losses' with risky investments, and that 'loans and other payments were made to insiders in excess of $1.5 billion.'
Asked by Kentucky GOP Rep. Andy Barr why he didn't trust the company's own internal audits, Ray pointed to the $8 billion in client funds still missing.'
'I don't trust a single piece of paper in this organization,' Ray said.
More than $1 billion has been recovered so far, he said, a majority of which were 'coins of various nature.'
English (United States) ·