Newly appointed FTX CEO John Ray could barely disguise his disbelief as he listed all the failures at the now-bankrupt crypto exchange before Congress on Tuesday—among them, the use of QuickBooks to manage the finances of the multibillion-dollar company.
Ray took the stand in front of the House Financial Services Committee as FTX’s founder and former CEO, Sam Bankman-Fried, arrived at court in the Bahamas on charges of wire fraud, conspiracy to defraud the United States, and more.
“I’ve done probably a dozen large-scale bankruptcies over my career, including Enron,” said Ray, who took over the company shortly after it filed for bankruptcy last month. “The FTX group is unusual.”
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Ray expressed astonishment that there was “no record-keeping whatsoever” at the business. Employees passed along invoices and expenses via Slack as opposed to a formal process, he said, and used QuickBooks to manage its finances. There was also no independent board to serve as a watchdog, he said.
Asked whether he trusted the company’s audited financial statements, Ray added, “We’ve lost $8 billion dollars of customer money, so by definition I don’t trust a single piece of paper in this organization.”
During the four-hour hearing, Ray also claimed that Bankman-Fried, the 30-year-old former crypto wunderkind, took multiple personal loans from his trading firm, Alameda Research. Bankman-Fried told regulators he re-invested the money back into the exchange, but Ray said there is no documentation of what the loans were for or how they were used.
In at least one case, Ray said, Bankman-Fried signed the loan as both the issuer and recipient. Ray added that bankruptcy officials will need to spend months untangling FTX's finances; he acknowledged that his team may not even know about all of the company's digital wallets.
Contrary to Bankman-Fried’s own representations, Ray also alleged there was “virtually no distinction whatsoever” in the leadership between FTX, its U.S. arm, and the trading firm, and that the owners could “run free rein” among all of them.
“It was really operated as one company,” Ray testified. “As a result, there’s no distinction, virtually, between the operations of the company and who controls those operations.”
The point was important given that SEC investigators allege that FTX lent customer funds to Alameda to make risky bets, putting customers’ assets at risk and ultimately losing them when the company crashed. Bankman-Fried has claimed he was unaware of the customer funds being lent to Alameda, seeming to place blame on Alameda CEO and his on-and-off girlfriend, Caroline Ellison.
Prosecutors in the Southern District of New York unsealed an eight-count indictment against Bankman-Fried on Tuesday, which included charges of wire fraud, conspiracy to commit money laundering, and conspiracy to commit securities fraud.
The Securities and Exchange Commission also announced fraud charges, and the Commodity Futures Trading Commission piled on as well, accusing SBF's firms of having “comingled, mishandled, and misappropriated” customer funds.
Committee Chair Rep. Maxine Waters and ranking member Rep. Patrick McHenry both applauded the arrest, though they expressed disappointment that SBF, as he is often called, would not have to testify under oath before the committee.
McHenry seemed to suggest the committee was interested in investigating others involved in the FTX crash, saying that the indictment “still does not get to the bottom of what happened at FTX, and why it happened, and who else may be responsible.”
“We need to examine the actions of those who contributed to what has been called a 'complete failure of corporate controls,'” he said. “And we need answers for the U.S. platform customers stuck in limbo.”
