John Ray, chief executive officer of FTX Cryptocurrency Derivatives Exchange, arrives at bankruptcy court in Wilmington, Delaware, US, on Tuesday, Nov. 22, 2022.
Sarah Silbiger | Bloomberg | Getty Images
FTX CEO John J. Ray III plans to inform the House Financial Services Committee on Tuesday that the cryptocurrency exchange under Sam Bankman-Fried had “unacceptable management practices,” in line with the manager’s prepared remarks.
Though Ray only mentions Bankman-Fried by name twice in his seven page opening remarks, it’s clear that lots of his initial criticisms in regards to the company are directed toward the organization’s former leadership.
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“…never in my profession have I seen such an utter failure of corporate controls at every level of a corporation, from the dearth of monetary statements to a whole failure of any internal controls or governance by any means,” Ray says in his statement, echoing similar statements he made in the corporate’s bankruptcy filing.
Ray, who led the restructuring of Enron, replaced Bankman-Fried last month when the corporate suddenly filed for bankruptcy, following a run on assets and reports that it had transferred billions of billions of dollars of FTX customer funds to the Bankman-Fried’s hedge fund, Alameda Research. The committee made Ray’s opening testimony public on Monday, a day before the hearing that can give attention to FTX’s collapse.
Bankman-Fried said in a Monday interview on Twitter Spaces that he plans to testify on the upcoming House hearing via video from his location within the Bahamas.
Ray lists what he found to be “unacceptable management practices” at FTX, including the “comingling of assets.” He also said the corporate lacked the “complete documentation for transactions involving nearly 500 investments made with FTX Group funds and assets.”
Ray explains in his remarks that FTX went on a “spending binge” from late 2021 through 2022 when roughly “$5 billion was spent buying a myriad of companies and investments, lots of which could also be price only a fraction of what was paid for them.”
He noted that “loans and other payments were made to insiders in excess of $1 billion.”
Other issues at FTX, in line with Ray’s opening remarks:
- The usage of computer infrastructure that gave individuals in senior management access to systems that stored customer assets, without security controls to stop them from redirecting those assets.
- The storing of certain private keys to access a whole bunch of tens of millions of dollars in crypto assets without effective security controls or encryption.
- The power of Alameda, the crypto hedge fund throughout the FTX Group, to borrow funds held at FTX.com for use for its own trading or investments with none effective limits.
- The absence of audited or reliable financial statements.
- The shortage of personnel in financial and risk management functions, that are typically present in any company near the dimensions of FTX Group.
- The absence of independent governance throughout the FTX Group.
