John Ray, the current CEO of FTX, didn't mince words Tuesday in front of the House Financial Services Committee.
"This isn't sophisticated whatsoever; this is just plain old embezzlement," Ray said. "There's a lot of titles in the company, but no experience to back it up."
During a hearing that lasted nearly four hours, he said the cryptocurrency exchange — which was one of the largest in the world at one point — was doomed to fail.
"The FTX group's collapse appears to stem from absolute concentration of control in the hands of this small group of grossly inexperienced, unsophisticated individuals who failed to implement virtually any of the systems or controls necessary for a company entrusted with other people's money or assets," Ray said.
Ray took over as the CEO of FTX on Nov. 11, the day the company filed for bankruptcy. He testified that he's never seen anything like the corporate structure at FTX — or lack thereof.
"It's one of the worst from a documentation standpoint," Ray said. "Even the most failed companies, you have a fair roadmap of what happened. We're dealing with literally a sort of a paperless bankruptcy in terms of how they created this company."
U.S. Prosecutors, SEC Charge Former FTX CEO Samuel Bankman-Fried
Bankman-Fried was arrested Monday in the Bahamas, where he has been living, after the U.S. filed criminal charges.
Another problem is the relationship between FTX and Alameda Research, the crypto hedge fund of former FTX CEO Sam Bankman-Fried. The lack of distinction between the two led to customers' funds getting mixed in with corporate money.
"It's really just the unlimited ability of those in control positions to borrow customer funds or take customer funds, and then deploy them for their own use," Ray said. "That use involved margin trading, which is inherently risky, and, of course, they've spent enormous amounts of money beyond that. But it's really the misuse of funds, and it's as simple as that on a large-scale basis."
Ray said his investigation of the FTX collapse will continue for months. He told lawmakers they've secured $1 billion in assets, but he said there are likely several billion dollars in losses.
Before his arrest Monday evening, Bankman-Fried was scheduled to testify after Ray. While some members were frustrated with the timing of the arrest, others, like Senate Banking Committee Chairman Sherrod Brown, said his arrest is good news.
"My No. 1 goal is to protect the public from these kinds of scams and these kinds of financial shenanigans, and I think this move by the federal government is a very good first step," Ohio Democratic Sen. Brown said. "We're going to continue doing hearings. We're gonna continue investigating."
Congressional scrutiny of FTX and Bankman-Fried could put some lawmakers in a tough spot. He donated millions to political campaigns during the 2022 midterms, including those of six Democrats on the House Financial Services Committee that had expected to question Bankman-Fried Tuesday.
