FTX’s recent CEO blasted Sam Bankman-Fried and his top business associates during scorched-earth testimony before a key House panel on Tuesday — just hours after the disgraced ex-billionaire’s arrest.
John Ray III — a restructuring expert who steered Enron through its bankruptcy — told lawmakers that Bankman-Fried ran the doomed cryptocurrency platform into the bottom with an entire lack of recordkeeping and with shady business practices — including funneling billions in client funds to the cryptocurrency hedge fund Alameda Research.
“FTX Group’s collapse appears to stem from absolutely the concentration of control within the hands of a really small group of grossly inexperienced and unsophisticated individuals who did not implement virtually any of the systems or controls which might be obligatory for an organization that’s entrusted with other people’s money or assets,” Ray said in his opening statement.
At one point, the brand new FTX boss shocked lawmakers by revealing that Bankman-Fried and his associates used QuickBooks, Intuit’s bookkeeping software for small businesses, to administer its sprawling cryptocurrency empire.
“There’s no recordkeeping in any respect, there’s an absence of recordkeeping,” Ray said. “They used QuickBooks, a multibillion-dollar company using QuickBooks. Nothing against QuickBooks, it’s a really nice tool, just not for a multibillion-dollar company.”
Shares of Intuit were trading 6% higher on Tuesday after the unexpected shoutout.
The testimony shed recent light on the chaos that defined FTX’s operations as $8 billion in client funds went missing. Bankman-Fried is alleged to have secretly funneled FTX client funds to prop up Alameda Research.
Ray discussed FTX’s bankruptcy in person for the primary time after previously detailing the chaotic proceedings in various court filings. Bankman-Fried was originally slated to testify at the identical hearing as Ray, but he was arrested within the Bahamas before that would occur.
Ray noted that he and other FTX caretakers are within the midst of a “truly enormous” investigation into the circumstances that led to the platform’s meltdown.
“While many things are unknown at this stage, and plenty of questions remain, we all know the next: First, customer assets from FTX.com were commingled with assets from the Alameda trading platform — that much is obvious,” Ray added. “Second, Alameda used client funds to interact in margin trading, which exposed customer funds to massive losses.”
Ray made several eye-opening assertions in his remarks to Congress — noting that Bankman-Fried had received “quite a few loans, a few of which were documented,” during his time running the corporate. In a single case, the 30-year-old signed as each the issuer and the recipient of a loan.
The aim of those loans is under investigation.
Ray also indicated the corporate was still “investigating” the extent to which Bankman-Fried’s parents, Stanford law professors Joseph Bankman and Barbara Fried, were involved in FTX’s operations.
Ray confirmed that Bankman had advised FTX and that the family had “received payments” from the corporate.
The feds hit Bankman-Fried with an array of charges, including conspiracy to defraud the US, wire fraud, securities fraud and campaign finance violations, based on an indictment that was unsealed earlier within the day.
Individually, the SEC accused Bankman-Fried of bilking FTX investors out of $1.8 billion.
House Financial Services Committee Chair Maxine Waters (D-Calif.) criticized federal authorities for opting to arrest Bankman-Fried on the eve of his planned appearance.
“The timing of his arrest denies the general public the chance to get the answers they deserve,” Waters added. “Rest assured that this committee won’t stop until we uncover the complete truth behind the collapse of FTX.”
Rating member Patrick McHenry (R-NC) called Bankman-Fried’s arrest “welcome news” but noted the committee still needed to conduct a full examination of what transpired at FTX.
“We’ve heard every little thing but the reality. Tweets, DMs and interviews are not any substitute for the facts,” McHenry said. “Bankman-Fried’s play is nothing recent — we’ve seen it before.”
A draft of Bankman-Fried’s prepared remarks reportedly revealed that he had planned to lash out at Ray on Capitol Hill. The FTX founder wrote that he regretted filing for bankruptcy and accused the Ray-led FTX leadership team of ignoring his attempts to make contact.
“I even have reached out to Mr. Ray and the Chapter 11 team quite a few times. Sometimes I’ve been requesting access to my very own data, but other times I’ve been attempting to alert them to potentially vital information for his or her jobs and duties to creditors and customers of FTX,” the testimony said.
Bankman-Fried, Ray and FTX’s bankruptcy attorneys have exchanged several public barbs in recent days.
Last week, Bankman-Fried alleged during a podcast interview that Ray had made “false” statements about FTX’s operations in the corporate’s court filings.
“There have been a variety of statements which were made, which were placed on legal record, that I do know to be false,” Bankman-Fried claimed.
“I don’t know in the event that they were intentionally lying or that it was just an honest mistake because of individuals not consulting with anyone who knew where these records were.”