The brand new CEO of the failed cryptocurrency trade FTX is showing earlier than a Home committee Tuesday, detailing for lawmakers the dearth of oversight and monetary controls that he found since taking on the corporate a month in the past.
John Ray III known as FTX’s collapse one of many worst enterprise failures he has seen – a “paperless chapter,” fueled by an “unprecedented lack of documentation.”
Notably absent from the listening to earlier than the Home Monetary Companies Committee is FTX’s founder and former CEO Sam Bankman-Fried, who was arrested within the Bahamas simply hours earlier than he was scheduled to testify. The arrest was made on the request of the U.S. authorities, which on Tuesday introduced legal prices towards Bankman-Fried together with wire fraud and cash laundering.
FTX filed for chapter safety on Nov. 11, when the agency ran out of cash after the cryptocurrency equal of a financial institution run. The collapse of crypto’s second-largest trade has garnered worldwide consideration, and prompted worries within the crypto business that the ache may grow to be widespread. Estimates are that FTX prospects may wind up shedding billions of {dollars}.
Ray, who took over FTX on Nov. 11, advised the committee that the issues at FTX have been a cumulation of months and even years of unhealthy choices and poor monetary controls.
“This isn’t one thing that occurred in a single day or in a context of per week,” he mentioned.
Ray, a long-time company restructuring skilled, mentioned the state of affairs at FTX was worse that what he discovered at Enron twenty years in the past. Enron was one of many greatest company frauds in U.S. historical past.
When requested to elaborate by Rep. Ann Wagner, R-Mo., Ray mentioned there was “no record-keeping in anyway” at FTX. Ray additionally mentioned staff used QuickBooks, software program sometimes utilized by small and medium-sized companies, to handle FTX’s funds.
“A multibillion-dollar firm utilizing QuickBooks,” Ray mentioned. At its peak, FTX’s market worth topped $30 billion.
In his ready remarks, Ray painted an image of an organization performing with little to no oversight.
“FTX Group’s collapse seems to stem from absolutely the focus of management within the fingers of a really small group of grossly inexperienced and unsophisticated people who didn’t implement just about any of the methods or controls which might be vital for a corporation that’s entrusted with different folks’s cash or belongings,” Ray mentioned.
In interviews since FTX filed for chapter safety, Bankman-Fried acknowledged that the corporate lacked correct monetary controls and company governance, however denied any fraud had been dedicated.
U.S. prosecutors and monetary regulators disagreed with that evaluation. An indictment unsealed Tuesday charged Bankman-Fried with a number of monetary crimes and marketing campaign finance violations, alleging he performed a central position within the fast collapse of FTX and hid its issues from the general public and traders. The Securities and Trade Fee mentioned Bankman-Fried illegally used traders’ cash to purchase actual property on behalf of himself and household.
Ray’s feedback supported these allegations.
“That is simply previous vogue embezzlement, taking cash from others and utilizing it on your personal functions,” he mentioned. “This isn’t refined in any respect.”
A lawyer for Bankman-Fried, Mark S. Cohen, mentioned Tuesday he’s “reviewing the fees together with his authorized crew and contemplating all of his authorized choices.”
