FTX US 'Was Not Independent' of Parent Company, New FTX CEO Will Say in House Testimony
FTX's new leadership is "working around the clock" to find and secure the defunct crypto exchange's assets, its new CEO will tell U.S. lawmakers on Tuesday, according to published remarks released Monday.
John Ray III, who assumed leadership of the company last month hours before it filed for bankruptcy protection, will tell the House Financial Services Committee that his new team has so far secured over $1 billion in digital assets, though that's only a small portion of the billions the company owes customers and other creditors.
In his remarks, Ray again denounced FTX's former leadership as being inexperienced, repeating comments from FTX's bankruptcy filings that he had never seen anything quite like the company's recordkeeping and asset management failings.
"A substantial portion" of FTX's assets remain "missing, misappropriated or not readily available," the prepared testimony said, which also implied FTX's former leadership was not being helpful to the new leadership.
"In the absence of cooperation from responsible parties or any appropriate system to track and protect crypto assets, we are continuing our painstaking forensic efforts to account for all of the assets, both as to the FTX US and FTX.com exchanges, as well as Alameda," he said.
For the first time, Ray provided some explanation as to why FTX US filed for bankruptcy alongside the rest of the company. Former FTX CEO Sam Bankman-Fried, who is also set to testify Tuesday, has previously said that FTX US was solvent and should be able to process customer withdrawals.
"Questions have been raised as to why all of the FTX Group companies were included in the Chapter 11 filing, particularly FTX US. The answer is because FTX US was not operated independently of FTX.com," Ray said. "Chapter 11 protection was necessary both to avoid a 'run on the bank' at FTX US and to allow our team the time to identify and protect its assets."
In the document, Ray said FTX's lack of security controls, allowing Alameda to borrow FTX's funds "without any effective limits," commingling of assets and the lack of documentation, "reliable financial statements" and independent governance are just some of the issues he identified.
He also confirmed that FTX spent around $5 billion on various investments and acquisitions, with another $1 billion going to insiders as loans and other payments. The acquisitions and investments in particular may no longer carry the same value they originally held.
"Although our investigation is ongoing and detailed findings will have to await its conclusion, the FTX Group’s collapse appears to stem from the absolute concentration of control in the hands of a very small group of grossly inexperienced and unsophisticated individuals who failed to implement virtually any of the systems or controls that are necessary for a company that is entrusted with other people’s money or assets," he said.
Read more: The FTX Downfall: Full Coverage