FTX chief: Company appears to be using ‘old fashioned embezzlement’

FTX’s new chief executive answered questions about his efforts to recover customer funds from the collapsed crypto exchange during a lengthy hearing before lawmakers on Tuesday, saying his team had encountered an “unprecedented” lack of accountability. records within the company.

John J. Ray III, a corporate restructuring lawyer, testified for about four hours, saying he was in the early stages of sorting through the swap to find money that could be used to repay creditors and consumers.

“Assets will take time to locate,” Mr. Ray said. “The process, as I said, will take months, not weeks. But we try to do it as quickly as possible. »

He described FTX as a company that kept few records of its activities, including tracking bills in the Slack messaging app and using QuickBooks commodity tax software, which is unusual for a business. of several billion dollars. He also said that while his team saved the company’s Slack, they were also aware that the company was using “vanishing messaging.”

Asked if customers would get their money back, Mr Ray refused.

“It is too early to say what the final recovery will be for each particular client. At some point we will obviously find out, and we obviously hope to maximize that,” he said.

“OK, it doesn’t sound like you really think they’re going to get their money back,” said Rep. Alma Adams, a Democrat from North Carolina.

Mr. Ray was asked to quantify the epic collapse of FTX and compare it with the collapse of Enron. Mr Ray oversaw the breakup of the energy trading company after an accounting scandal in 2001.

He said they were separate situations and called the perpetrators of the Enron crimes “very sophisticated,” while FTX executives appeared to have engaged in “really old-fashioned embezzlement.” “and weren’t fancy at all.

Nonetheless, Mr. Ray’s responses suggested that he believed Sam Bankman-Fried, the former chief executive of FTX, was well aware of fraud within the company. At one point, he was asked if it was possible that Mr. Bankman-Fried was unaware of the mixing of funds between the FTX entities, as he previously claimed, including in interviews with the New York Times.

“No,” replied Mr. Ray.

On Tuesday, prosecutors charged Mr. Bankman-Fried with defrauding investors. He also faces civil charges of securities fraud.

Lawmakers have called for new regulations on the crypto industry. Rep. Jake Auchincloss, Democrat of Massachusetts, said his “patience with crypto bulls is running out.”

“It’s been 14 years and the American public has heard a lot of promises, but they’ve seen a lot of Ponzi schemes,” he said. “For crypto, it’s time to stand up or shut up.”

When lawmakers spoke directly about Mr. Bankman-Fried, who courted politicians on both sides of the aisle before FTX collapsed, they were critical.

Rep. Brad Sherman, a California Democrat and longtime crypto critic, reminded his colleagues of the big picture. “Don’t throw out Sam Bankman-Fried and then pass his bill,” Sherman said, referring to Bankman-Fried’s extensive lobbying in Washington and efforts to pass crypto legislation that would work for FTX.

Asked about Mr. Bankman-Fried’s role in the company going forward, Mr. Ray was succinct.

“The role he plays now: zero,” he said.