Sam Bankman-Fried’s management of FTX was an “utter failure,” which lacked all levels of financial controls and allowed his family office trading vehicle, Alameda Research, to raid the crypto exchange’s coffers to make unlimited risky bets that blew the company up.
That’s how the company’s newly-appointed chief executive, John J. Ray, III, plans to describe his predecessor’s management of FTX during its meteoric rise and spectacular collapse into bankruptcy last month.
“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,” Ray is set to say in prepared remarks to Congress on Tuesday.
Bankman-Fried is also set to testify via video link on Tuesday before the House of RepresentatIves’ Committee on Financial Services. A spokesman for Bankman-Fried didn’t immediately respond to a message seeking comment.
Some details from Ray’s accusations have filtered out before, but his sworn testimony crystalizes just how much of a mess FTX was in when he was put in charge in early November.
Here are five of the most damning allegations contained within Ray’s prepared remarks which were released on Monday:
- FTX customer assets were commingled with assets from the Alameda trading platform. That allowed Alameda to use FTX client funds to engage in margin trading without limits, exposing customers to massive losses.
- FTX went on a spending binge in late 2021 through 2022, plunking down approximately $5 billion to buy “a myriad of businesses and investments, many of which may be worth only a fraction of what was paid for them.”
- The crypto exchange issued loans and other payments of over $1 billion to company insiders.
- Alameda’s business model as a market maker required it to place funds on unstable third party exchanges “which were inherently unsafe, and further exacerbated by the limited protections offered in certain foreign jurisdictions.”
- FTX’s new management team has only been able to secure $1 billion in assets, saying that unreliable and incomplete accounting by Bankman-Fried has complicated efforts to recover missing customer money.