The Tribune

By KHRISNA RUSSELL

Tribune Chief Reporter

krussell@tribunemedia.net

UNITED States Congresswoman Maxine Waters expressed hope that former FTX CEO Sam Bankman- Fried’s arrest and arraignment will signal him being held accountable for the alleged “fraud” he committed leading to the giant crypto exchange firm’s disgraceful fall, affecting as many as one million people.

“We will not stop until we uncover the full truth behind the collapse of FTX,” the official vowed yesterday in opening remarks at a hearing before the US House Committee on Financial Services.

In her five-minute address to the committee, Congresswoman Waters said it was the committee’s intention to dig deeper into the wrongdoing that led to FTX’s implosion, adding it was also their aim to uncover how SBF’s family and friends were allegedly intertwined in the matter.

Meanwhile, John Ray III, FTX’s new CEO, said the firm’s collapse stemmed from “absolute concentration of control in the hands of a small group of grossly inexperienced non-sophisticated individuals who failed to implement virtually any of the system or controls that are necessary for a company” handling other people’s money.

Both the congresswoman and the CEO had anticipated the testimony of Mr Bankman-Fried himself. However, his arrest on Monday night and arraignment in a Bahamian Magistrate’s Court yesterday prevented his testimony under oath before the committee.

Ultimately, he was denied bail and remanded to the Bahamas Department of Correctional Services. His next court appearance is scheduled for February 8, 2023.

“I am hopeful that the arrest of Mr Bankman-Fried, the founder and former CEO of FTX means he will be held accountable for the (alleged) fraud he has committed and the harm he has caused,” Congresswoman Waters said.

“He was scheduled to testify under oath before this committee today, unfortunately the timing of his arrest denies the public the opportunity to get the answers they deserve. Rest assured that this committee will not stop until we uncover the full truth behind the collapse of FTX.

“Just a few months ago FTX was one of the largest crypto currency exchanges in the world with a valuation of $32bn in just three years since its founding. Today FTX is bankrupt and possibly looted. FTX misused an approximate $10bn in customer funds and owes creditors at least $3bn.

“Today as many as one million people, many of whom are here in the United States, are locked out of their FTX accounts and may recover only a fraction of their hard-earned investments, if any at all.”

She said the failure was not just noteworthy for its size, but for the company’s total disregard for standard business practices, governance, risk management, and alleged criminal conduct.

She told those gathered that the committee hoped to piece together the events that led to the collapse of FTX and the subsequent harm to millions of customers who put their trust in the platform.

“We will also look at FTX’s deep ties with Alameda, a crypto hedge fund predominantly owned by Bankman-Fried, that gambled away billions of dollars in customer assets that were inappropriately transferred from FTX and importantly we will hear how Mr Ray and his team are trying to recover funds for customers by piecing together Bankman-Fried’s broken record keeping by identifying potentially unlawful transfers to himself as well as his friends and family.”

Mr Ray, who oversaw one of the largest corporate bankruptcies in the United States’ history — Eron, in 2001 — said there were several unacceptable management practices that contributed to the FTX fall.

He said: “The FTX group’s collapse appears to have stemmed from absolute concentration of control in the hands of a small group of grossly inexperienced non-sophisticated individuals who failed to implement virtually any of the systems or controls that are necessary for a company and with other people’s money or assets.

“Some of the unacceptable management practices were identified so far include the use of computer infrastructure that gave individuals and senior management access to systems that stored customer assets without security controls to prevent them from redirecting those assets, storing of certain private keys to access hundreds of millions of dollars in crypto assets without effective security controls or encryption.

While Bankman-Fried’s detainment prevented his testimony before the US Congress committee, the full testimony he planned to make was leaked and pictures of it ultimately published by Forbes.com.

In it, the former billionaire begins by saying: “I f-ed up,” adding he was aware that it didn’t mean much to say sorry, but that he was dedicating himself to doing right by customers.

“I know that it doesn’t mean much to say that I’m sorry. And so I’m dedicating as much of myself as I can to doing right by customers. When all is said and done, I’lI judge myself primarily by one metric: whether I have eventually been able to make customers whole. If I fail our customers in this regard, I have failed myself,” the remarks read.

He said since the collapse of FTX, his net worth valuation went from $20bn last year to what he believed was now about $100,000 in his bank account.

However, he could not say for sure because he was denied access to many of his own personal passwords, data, documents and accounts.

“As of today, I and many other members of FTX International’s former management team are missing access to key data – data that could help inform customers, inform the Chapter 11 team’s decisions and inform foreign regulators looking after FTX International. Nearly all of this data is held by the Chapter 11 team.”

Mr Bankman-Fried also intended to accept culpability, saying in the leaked transcript: “I as CEO of FTX had to make a number of significant mistakes.

“I believe that the thread that most ties them together is that for much of 2022 I was less grounded in operational details than I had been before. I had prided myself on staying grounded, sitting in the weeds, day to day, of the company.

“But by mid-2022, I believe I was spending approximately 25 percent of my time talking with regulators and policymakers in DC and beyond, 25 percent of my time on branding and new pathways for FTX, including remittances, financial settlement and sports partnerships (and) 25 percent of my time managing FTX’s growing workforce.

“Together those were maybe 25 percent of my time in 2020, but by 2022 they were closer to 75 percent. That’s time that wasn’t spent focusing on the actual core product, including risk management.

“I also prided myself on having a strong work ethic; I began FTX by routinely working 18 hour days but for much of 2022, I believe I was working about 30 percent less than I was used to and even when I was working, I was less focused and disciplined than I used to be.

“I thought that I could hold FTX together despite the expansion. I was wrong. I bit off more than I could chew and ended up failing to focus on risk management.”