New FTX CEO John Ray Details Crypto Exchange’s Downfall in US House Testimony TechCrunch

Ray: “I don’t trust a single piece of paper in this organization”

The United States House The Financial Services Committee held a hearing on Tuesday morning focusing on the collapse of FTXa few hours later the former CEO of the cryptocurrency exchange, Sam Bankman-Fried arrested in the Bahamas.

Bankman-Fried was originally scheduled to testify at the hearing, an appearance that was scuttled after he was arrested by Bahamian authorities in light of allegations from the U.S. Securities and Exchange Commission, the Commodity Futures Trading Commission and the Southern District of the Department of justice of New York.

Four-week FTX CEO John J. Ray III sat as sole witness for hearing as Bankman-Fried reported made an appearance in a Bahamian court on his arraignment.

The four-hour hearing covered a lot of ground and left many unanswered questions, but several sides stood out from Ray’s testimony. Below, we’ve rounded up the points that matter. Since we’re assuming you didn’t get to see the entire session live, please take note of our notes:

  • There are still no exact numbers detailing the extent to which the funds were misused, but it’s at “over $7 billion.”
  • There were 7.6 million accounts on FTX and 2.7 million US-based accounts, but it’s unclear how much money they lost.
  • Over $1 billion in cryptocurrencies have been recovered and protected. FTX’s new management team has also secured “cash” in its bank accounts. But it will take weeks, if not months, to secure all assets, he added.
  • Ray confirmed that client funds were deposited directly into Alameda Research, as opposed to FTX accounts.
  • The operations of the FTX group were not separate from the Alameda subsidiary; they operated as one company. Consequently, there is virtually no distinction between the operations of companies and who controlled them.
  • Discussing Bankman-Fried receiving a $1 billion loan from Alameda, Ray said, “The loans Mr. Bankman-Fried was given were not just one loan, there were numerous loans. … There is no description of the purpose of what the loan was. In one case he signed on as both the loan issuer and the loan taker. We currently have no information on what the purpose or use of these funds was. It’s part of our investigation.”
  • The use of FTX capital in Alameda was not accidental or accidental. “The operation of Alameda really depended on the use of client funds. This is the main fault here. Funds from, which was the exchange for non-US citizens, those funds were used in Alameda to make investments and other disbursements,” Ray said.
  • Alameda was effectively a client of and Bankman-Fried owned 90% of Alameda, Ray said.
  • When asked if FTX had any significant risk management systems in place, Ray said, “There were virtually no internal controls and no separation whatsoever.” Later in the hearing, Ray revealed that there was no board overseeing FTX, other than Bankman-Fried. FTX, once valued at $32 billion, did not have an accounting or human resources department. However, it had a legal department and employees with compliance titles, but no departments they could call home.

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