FTX’s new 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 ground with a complete lack of record keeping and shady business practices – including funneling billions in client funds to the cryptocurrency hedge fund Alameda Research.
“FTX Group’s collapse appears to stem from the absolute concentration of control in the hands of a very small group of grossly inexperienced and unsophisticated individuals who failed to implement virtually any of the systems or controls that are necessary for a company that is entrusted with other people’s money or assets,” Ray said in his opening statement.
At one point, the new FTX boss shocked lawmakers by revealing Bankman-Fried and his associates used “QuickBooks,” Intuit’s bookkeeping software for small businesses, to manage its sprawling cryptocurrency empire.
“There’s no record-keeping whatsoever, there’s an absence of record-keeping,” Ray said. “They used QuickBooks, a multibillion-dollar company using QuickBooks. Nothing against QuickBooks, it’s very 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 new 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 first time after previously detailing the chaotic proceedings in various court filings. Bankman-Fried was originally slated to testify at the same hearing as Ray, but he was arrested in the Bahamas before that could occur.
Ray noted that he and other FTX caretakers are in 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 many questions remain, we know the following: First, customer assets from FTX.com were commingled with assets from the Alameda trading platform – that much is clear,” Ray added. “Second, Alameda used client funds to engage 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 “numerous loans, some of which were documented” during his time running the company. In one case, the 30-year-old signed as both the issuer and the recipient of a loan.
The purpose of those loans is under investigation.
Ray also indicated the company 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 company.
The feds hit Bankman-Fried with an array of charges, including conspiracy to defraud the US, wire fraud, securities fraud and campaign finance violations, according to an indictment that was unsealed earlier in the day.
Separately, 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 public the opportunity to get the answers they deserve,” Waters added. “Rest assured that this committee will not stop until we uncover the full truth behind the collapse of FTX.”
Ranking 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 everything but the truth. Tweets, DMs and interviews are no substitute for the facts,” McHenry said. “Bankman-Fried’s play is nothing new – we’ve seen it before.”
A draft of Bankman-Fried’s prepared remarks reportedly revealed that 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 have reached out to Mr. Ray and the Chapter 11 team numerous times. Sometimes I’ve been requesting access to my own data, but other times I’ve been attempting to alert them to potentially important information for their 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 company’s court filings.
“There have been a lot of statements that have been made, that have been put on legal record, that I know to be false,” Bankman-Fried claimed. “I don’t know if they were intentionally lying or that it was just an honest mistake because of people not consulting with anyone who knew where these records were.”
“There were virtually no internal controls and no separateness whatsoever” between FTX and Alameda.