FTX employees invoicing and expense over Slack used QuickBooks, a consumer-level tax software to manage its accounting, John Ray III, the new CEO of the company, stated during Tuesday’s House Financial Services Committee hearing.
“Nothing against QuickBooks. Ray described it as a “very nice tool.” “It is not for multibillion dollar companies.”
This critique reveals what Ray said was the root cause of the problems at FTX. In prepared testimony, Ray laid the collapse of the exchange at the feet of “a very small group of grossly inexperienced and unsophisticated individuals,” referring to FTX founder Sam Bankman-Fried and his inner circle.
Ray testified today that FTX did not have any internal controls or separateness to monitor its leverage and ties to Alameda Research (a company also started by Bankman-Fried). Ray claimed that the new leadership team at FTX has been able secure assets worth more than $1billion in “cold pockets, in a secure place” but it will likely take weeks or months to find all of them.
The disgraced Bankman Fried, who was supposed to testify after Ray at the D.C. hearing was over, was instead arrested in the Bahamas by U.S. authorities, who have already begun planning his extradition. U.S. prosecutors brought eight criminal charges against Bankman Fried, including wire fraud as well as conspiracy to commit money laundering.
FTX filed for bankruptcy November 11th, a week after Alameda revealed that it had billions of dollars worth of illiquid FTX Tokens (FTT). The news shook consumer confidence and caused users to rush to withdraw funds from FTX. FTX was forced to suspend withdrawals due to the liquidity crisis.
Both Bankman-Fried and Binance CEO Changpeng Zhao (also called “CZ”) tried to save FTX, but both failed. Bankman-Fried resigned, and over 130 entities belonging to the FTX group sought Chapter 11 protection.
Rep. Patrick McHenry, a ranking member of the Financial Services Committee, stated today that the committee still plans to pursue answers from Bankman Fried.
“We have heard all but the truth. Tweets, DMs and interviews cannot replace the facts”, he stated, later adding that he was looking forward to “getting his lies on the record, under oath,” referring specifically to Bankman-Fried.
McHenry also expressed concern about the lack of clear regulation by the U.S Securities and Exchange Commission.
He stated that “We know that the Securities Exchange Commission Chair Gensler’s regulation-by-enforcement approach isn’t going to stop bad actors.” “Next year, Mr. Gensler will be my voice and I look forward hearing from him often.”
Earlier this month, House Financial Services Committee Chair Maxine Waters (D-CA), thanked Bankman-Fried for being “candid” in the many interviews he’s done in the past month and asked him to testify before the committee. Waters, in a statement made yesterday following Bankman Fried’s arrest, questioned the timing.
“Although Mr. Bankman-Fried must be held accountable, the American public deserves to hear directly from Mr. Bankman-Fried about the actions [that have] harmed over one million people, and wiped out the hard-earned life savings of so many,” Waters said in a statement. “The public has been waiting eagerly to get these answers under oath before Congress, and the timing of this arrest denies the public this opportunity.”
His testimony today was meant to be Bankman-Fried’s first official appearance in D.C.—albeit, virtually—since the sudden collapse of his empire last month, which includes crypto exchange FTX and quantitative trading firm Alameda Research. He agreed to speak before the House committee today, but declined an invitation to testify at Wednesday’s Senate Banking Committee.