John Ray III, who took FTX over from Sam Bankman-Fried last month, told the House Financial Services Committee on Tuesday that record-keeping under Bankman-Fried was virtually nonexistent.
“It’s an absence of record-keeping. Employees would communicate invoicing and expenses on Slack, which is essentially a way of communicating [in] chatrooms,” Ray told lawmakers. “They used QuickBooks — a multibillion-dollar company using QuickBooks.”
“QuickBooks?” Rep. Ann Wagner (R-MO) asked in shock.
“QuickBooks. Nothing against QuickBooks, it’s a very nice tool, just not for a multibillion-dollar company,” replied Ray.
Ray, who oversaw Enron following its collapse, had previously expressed his shock at the state of the company in a filing in federal bankruptcy court, in which he said he had never seen in his career “such a complete failure of corporate controls and such a complete absence of trustworthy financial information” as what occurred at FTX.
One key question that investigators had about the implosion was whether Bankman-Fried commingled customer funds at FTX with those of associated cryptocurrency hedge fund Alameda Research, which he also founded. Ray testified Tuesday that funds between the two companies were undeniably tied.
“First, customer assets at FTX.com commingled with assets from the Alameda trading platform. That much is clear,” Ray said. “Second, Alameda used client funds to engage in margin trading, which exposed customer funds to massive losses.”
“Third, the FTX group went on a spending binge in 2021, 2022, during which $5 billion was spent on a myriad of businesses and investments, many of which may only be worth a fraction of what was paid for them,” FTX’s new CEO said.
The Tuesday hearing was supposed to feature Bankman-Fried, who planned to testify remotely from his location in the Bahamas, but just hours before he could speak, Bahamian police arrested the disgraced 30-year-old after the United States filed criminal charges against him and requested extradition.
The Securities and Exchange Commission announced it charged Bankman-Fried with fraud. Those charges were conducted in parallel with actions by the Southern District of New York’s Attorney’s office and the Commodity Futures Trading Commission.
“We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto,” said SEC Chairman Gary Gensler in a press release. “The alleged fraud committed by Mr. Bankman-Fried is a clarion call to crypto platforms that they need to come into compliance with our laws.”