12/15/2022
FTX’s new CEO John J. Ray plans to reveal five ways the bankrupt crypto exchange handled its money, at Tuesday’s US House Financial Services Committee hearing.
In his testimony, Ray, who oversaw bankruptcy proceedings at energy firm Enron, highlights several “unacceptable management practices” at FTX, including a $5 billion “spending binge” and the commingling of the exchange’s assets with those of its sister company, Alameda Research.
“Never in my career have I seen such an utter failure of corporate controls at every level of an organization, from the lack of financial statements to a complete failure of any internal controls or governance whatsoever,” he said in his remarks.
FTX filed for bankruptcy last month after suffering a liquidity crisis that saw its ex-CEO Sam Bankman-Fried in need of an $8 billion cash injection. On Monday, Bankman-Fried was arrested by Bahamian authorities in the face of allegations that he illegally mishandled customer funds, leading to billions of dollars in losses.
The disgraced FTX founder was expected to testify at the Tuesday hearing, but it is unclear whether he will still attend.
While Ray notes that “many things are unknown at this stage,” he and his team know the following about FTX and its funds:
– Customer assets from FTX.com were commingled with assets from its sister trading platform, Alameda Research.
– Alameda used client funds to engage in “margin trading” which exposed customer funds to massive losses.
– The FTX Group went on a $5 billion spending binge in late 2021 through 2022, where they purchased a “myriad” of businesses and investments possibly at prices beyond their worth.
– Loans and other payments of more than $1 billion were credited to insiders.
– Alameda’s business model as a market maker required deploying funds to various third party exchanges which were inherently unsafe.
Source: Business Insider
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