New FTX CEO Testifies on ‘Complete Failure of Corporate Management’

FTX CEO John J. Ray III will tell the House Financial Services Committee on Tuesday that the cryptocurrency exchange under Sam Bankman-Fried has engaged in “unacceptable management practices.” .

Ray only mentions Bankman-Fried by name twice in his opening remarks on page 7, but it’s clear that much of his initial criticism of the company was directed at the organization’s former leaders. .

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“…in my career, I have never seen a total failure of corporate controls at any level of the organization, from lack of financial statements to total failure of internal controls and governance,” Ray said in a statement. said in It echoes similar statements he made in his company’s bankruptcy filing.

Wray, who led Enron’s restructuring last month, transferred billions of dollars of FTX client money to Bankman-Fried’s hedge fund when the company suddenly filed for bankruptcy following asset executions and reports. He succeeded Bankman Freed. , Alameda Research. The commission released Ray’s opening testimony on Monday, the day before the hearing focused on FTX’s demise.

Bankman-Fried said in an interview on Twitter Spaces on Monday that he plans to testify at the upcoming House hearings via video from his location in the Bahamas.

Ray cites what FTX has found to be “unacceptable management practices,” including “assets commingling.” He also said the company lacks “complete documentation of transactions involving approximately 500 investments made with FTX Group’s funds and assets.”

In his remarks, FTX said that in late 2021 and 2022, “about $5 billion will be spent to buy countless businesses and investments, many of which are only worth a fraction of what was paid. He explained that he continued to “waste” that “maybe”.

“More than $1 billion in loans and other payments have been made to insiders,” he said.

Other issues with FTX, per Ray’s opening remarks:

• Use of computer infrastructure that enables senior management individuals to access systems that store customer assets. No security controls are in place to prevent redirection of these assets.
• Storage of specific private keys to access hundreds of millions of dollars in crypto assets without effective security controls or encryption.
• Alameda, a cryptocurrency hedge fund within the FTX Group, can borrow funds held on FTX.com and use them for its own trading or investments without practical restrictions.
• Lack of audited or reliable financial statements.
• Understaffing in treasury and risk management functions, which is typical for companies of similar size to FTX Group.
• Lack of independent governance across the FTX Group.