New FTX CEO says lax oversight, bad decisions caused failure
WASHINGTON –
Sam Bankman-Fried, founder and former CEO of the failed cryptocurrency change FTX, helped 1,500 Bahamian buyers take away $100 million from their accounts whereas different clients all over the world have been locked out of the change, in keeping with the corporate’s new CEO, who testified earlier than a House committee Tuesday.
FTX CEO John Ray III, who has guided dozens of firms, together with Enron, via chapter restructuring, referred to as FTX’s collapse one of many worst business failures he has seen — a “paperless bankruptcy,” fueled by an “unprecedented lack of documentation.”
For practically 4 hours, with no break, Ray advised lawmakers concerning the lack of oversight and monetary controls that he found since taking on FTX a month in the past. He discovered a mortgage the place Bankman-Fried was each the issuer and the recipient. There have been bills accredited by emoji. FTX did not have accountants. For record-keeping, staff used QuickBooks, pre-packaged software program usually utilized by small and medium-sized companies, to handle FTX’s funds.
“Nothing against QuickBooks,” Ray stated. “It’s a very nice tool, just not for a multibillion-dollar company.”
At its peak, FTX’s market worth topped $30 billion.
Notably absent from the listening to earlier than the House Financial Services Committee was 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 felony expenses in opposition to Bankman-Fried together with wire fraud and cash laundering.
The timing of Bankman-Fried’s arrest annoyed many committee members. Republican Rep. William Timmons, of South Carolina, referred to as the timing “bizarre” and added that, as a former prosecutor, he could not think about why any prosecutor would not need “hours of congressional grilling for the target of an investigation” to assist make a case.
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 change has garnered worldwide consideration, and prompted worries within the crypto business that the ache might turn out to be widespread. Ray estimated that about $8 billion of buyer funds are lacking.
Some clients within the Bahamas, the place FTX was primarily based, have been in a position to get well some cash, Ray stated. That’s as a result of the Bahamian authorities and Bankman-Fried agreed to allow them to get their cash out of FTX whereas clients in different international locations have been blocked from doing so, Ray stated.
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 selections and poor monetary controls.
“This is not something that happened overnight or in a context of a week,” he stated.
However, Ray did not reply quite a few questions on what rules might have stopped the collapse of FTX. Instead, he targeted on how uncommon FTX was — having no board of administrators, having no actual construction that prohibited cash invested by customers in FTX to be shifted to Bankman-Fried’s hedge fund Alameda Research for different investments or lavish purchases, with out the unique buyers’ data.
In his ready remarks, Ray painted an image of an organization performing with little to no oversight.
“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 stated.
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 bunch of monetary crimes and marketing campaign finance violations, alleging he performed a central function within the speedy collapse of FTX and hid its issues from the general public and buyers. The Securities and Exchange Commission stated Bankman-Fried illegally used buyers’ cash to purchase actual property on behalf of himself and household.
Ray’s feedback supported these allegations.
“This is just old fashion embezzlement, taking money from others and using it for your own purposes,” he stated. “This is not sophisticated at all.”
A lawyer for Bankman-Fried, Mark S. Cohen, stated Tuesday he’s “reviewing the charges with his legal team and considering all of his legal options.”
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Reporter Ken Sweet contributed.
