With FTX’s Founder Facing Charges, New CEO Details Lack of Independence of FTX US

Despite assurances from founder Sam Bankman-Fried, the distinctions between crypto exchange FTX US and its international sibling were no more than superficial, John Ray III, the replacement CEO steering the company through bankruptcy, told lawmakers on Tuesday.

“What we’re seeing now is that the crypto assets for both FTX.com and for FTX US were housed in the same database," Ray said in testimony before the House Financial Services Committee. He said the assets were “all housed in the same web format” at Amazon Web Services.

As Ray picks through the wreckage of the company Bankman-Fried drove spectacularly into the ground, the former CEO was arrested in the Bahamas and is facing U.S. criminal charges as well as enforcement actions from regulators. Against that backdrop, Ray testified in the hearing that was supposed to include Bankman-Fried, telling the panel that a group of untrained executives with no interest in safe corporate practices was responsible for gathering billions of dollars from customers and investors.

Ray, who performed the same task when Enron fell into ruin two decades ago, said the dysfunction at FTX was longstanding. There was no independent board and no coherent record keeping, he said.

“This is not something that happened overnight or within the course of a week,” he said, describing “absolutely no internal controls, whatsoever.”

“Employees would communicate invoicing and expenses on Slack," he said, referring to the communications app. And he said the team used the off-the-shelf accounting software QuickBooks. "Nothing against Quickbooks. It's a very nice tool – just not for a multibillion-dollar company.”

Committee Chairwoman Maxine Waters (D-Calif.) exhibited frustration against the law enforcement authorities’ timing, which robbed her of a chance to question Bankman-Fried at the hearing. He’d planned to testify remotely from his island home, until news emerged late Monday that local authorities had taken him into custody to face U.S. charges of conspiracy and fraud revealed early Tuesday.

“Unfortunately, the timing of his arrest denies the public the opportunity to get the answers they deserve,” Waters said.

With testimony from Ray, the formal actions from regulators detailing wrongdoing inside FTX’s “house of cards” and the U.S. criminal case, Tuesday marks the first full view into what happened inside of FTX, without the filter of its fallen leader, Bankman-Fried.

The former CEO has barely stopped talking publicly with journalists and other industry figures, even after resigning from the company. Among his arguments was that the U.S. arm of the company was separate from global exchange, FTX.com.

“I'm so deeply troubled to learn how common it was for Bankman-Fried and FTX employees to steal from the cookie jar of customer funds to finance their lavish lifestyles,” Waters said.

The panel’s ranking Republican, Rep. Patrick McHenry (R-N.C.), who will lead the committee in the next congressional session, hewed to his party’s common argument on the FTX case:

"We have to separate out the bad actions of an individual from the good created by an industry and an innovation," McHenry said.

Read More: 10 Questions for FTX CEO John J. Ray III From a Securities Lawyer