FTX CEO John Ray III Dec 13 testimony A bankrupt exchange has revealed to the U.S. Congress that it had mixed up assets and kept private wallet keys unencrypted.
According to Ray, FTX’s collapse was caused by corporate mismanagement and was the worst he’s seen in over 40 years handling bankruptcies. He said FTX’s operations are concentrated in the hands of “a very small group of very inexperienced and unsophisticated individuals” who have failed to implement the form of control required for companies holding other people’s money. pointed out.
Earlier in the day, FTX co-founder Sam Bankman-Fried was arrested in the Bahamas on orders from the US government. His Dec. 12 press statement by the Attorney General of the Bahamas revealed that the U.S. government has filed criminal charges against his SBF and will likely demand extradition.
Damien Williams, U.S. Attorney for the Southern District of New York, confirmed the development. Williams said SBF was “arrested at the request of the U.S. government based on a sealed indictment filed by SDNY.”
Unacceptable Management Practices at FTX
Ray’s testimony lists eight unacceptable management practices at FTX Group. These included asset mix, lack of audited financial statements, lack of independent governance, and lack of personnel responsible for finance and risk management.
Additionally, senior management at the bankrupt exchange had access to consumer funds and did not properly document their investment in FTX, allowing Alameda to borrow without limit.
Alameda’s role in FTX collapse
Ray also highlighted Alameda’s role in the collapse of the bankrupt exchange. According to the CEO, FTX confused users’ assets with his Alameda trading platform.
Separately, Alameda borrowed an unlimited amount of client assets held on FTX. These funds were used for margin trading, resulting in huge losses.
Alameda also “financed various third-party exchanges that are inherently insecure and exacerbated by the limited protections offered in certain foreign jurisdictions.”
FTX Had a $5 Billion ‘Bingeing’
The testimony further revealed that FTX spent $5 billion in late 2021 and 2022. During this period, Ray revealed that the company bought and invested in several companies.
Insiders, on the other hand, also enjoyed special treatment and secured over $1 billion in personal loans.
Ray said efforts are underway to recover some of the missing funds, maximize value for customers and creditors, and repair FTX’s relationship with regulators around the world. .