FTX CEO John Ray will tell lawmakers on Tuesday that the bankrupt cryptocurrency exchange had “unacceptable management practices” including the commingling of assets and lack of internal controls, according to prepared remarks published Monday by the US House Financial Services Committee.
FTX filed for US bankruptcy protection last month and its founder Sam Bankman-Fried resigned as chief executive. Both Ray and Bankman-Fried will testify before the committee on Tuesday at 10 am ET (1500 GMT). Bankman-Fried said earlier Monday that he would appear remotely the hearing.
Ray in his prepared remarks said that the FTX collapse appeared to stem from the concentration of control “in the hands of a very small group of grossly inexperienced and unsophisticated individuals.”
“Never in my career have I seen such an utter failure of corporate controls at every level of an organization, from the lack of financial statements to a complete failure of any internal controls or governance whatever,” Ray said.
FTX filed for bankruptcy Nov. 11 after it struggled to raise money to stave off
as traders rushed to withdraw $6 billion from the platform in just 72 hours.
In recent weeks, US authorities have sought information from investors and potential investors in FTX, two sources with knowledge of the requests told Reuters. Prosecutors and regulators have not charged Bankman-Fried with any crime.
Tuesday’s hearing will be the first time Bankman-Fried and Ray
before US lawmakers.
Ray said in his testimony that he has hired a new chief financial officer, a head of human resources and administration and a head of information technology. He has also appointed a board of directors, which is chaired by former US Attorney Joseph Farnan.
Since he took over as CEO, Ray said he has established that customer assets at FTX were commingled with those of Alameda Research, Bankman-Fried’s crypto trading firm that maintained close ties with his exchange. Client funds were used to engage in margin trading, which exposed customers to massive losses, Ray said.
Ray also addressed why FTX US was included in the bankruptcy filing, which Bankman-Fried has expressed confusion about in media interviews, claiming that the company’s US entity is financially sound.
But Ray said such a step was necessary to avoid a “run on the bank” and to allow FTX’s new leadership to identify and protect its assets.
“Since the time of the filing, I have become even more confident this was the correct decision, as the books and records issues at FTX US and the many relationships between FTX US and the other FTX Group companies become clearer,” he said.
(Reporting by Hannah Lang in Washington; Editing by Mark Porter and Nick Zieminski)