Testimony: FTX Collapsed Through ‘Utter Failure’ to Implement Corporate Controls

FTX CEO John Ray
Sarah Silbiger/Bloomberg via Getty Images

John Ray, the current CEO of FTX, blamed the digital currency exchange’s collapse on “grossly inexperienced and unsophisticated individuals” who failed to implement any controls, in prepared testimony for the House Financial Services Committee.

Ray released his prepared testimony ahead of Tuesday’s House Financial Services Committee hearing, which will feature him as well as disgraced former FTX CEO Sam Bankman-Fried.

After Bankman-Fried stepped down as chief executive in the wake of the collapse of FTX, Ray became the CEO. Ray has served as either the Chief Restructuring Officer or CEO in several large and vexing corporate failures involving allegations of criminal activity and malfeasance, including the Enron bankruptcy.

In his testimony, he explained how the collapse of FTX may eclipse his decades of working on bankruptcy proceedings:

Nearly all of these situations share common characteristics, ranging from gross mismanagement, excessive leverage, failures of internal controls, failures of external checks as a result of audit firm failures, or insufficient board governance. But 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. 

Although our investigation is ongoing and detailed findings will have to await its conclusion, 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. [Emphasis added]

Ray explained that many of the “unacceptable management practices” of FTX include:

  • Senior management had access to customer assets without security controls to prevent them
  • Storing digital currency private keys worth hundreds of millions of dollars without effective security measures
  • Allowing Alameda, FTX’s trading arm, to borrow funds held at FTX for trading without any “effective limits”
  • Commingling assets
  • No documentation for transactions involving roughly 500 assets made with FTX Group funds and assets

This led Ray to have five conclusions about FTX:

  • “First, customer assets from FTX.com were commingled with assets from the
    Alameda trading platform.
  • 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 late 2021 through 2022,
    during which approximately $5 billion was spent buying a myriad of businesses and investments,
    many of which may be worth only a fraction of what was paid for them.
  • Fourth, loans and other payments were made to insiders in excess of $1 billion.
  • Fifth, Alameda’s business model as a market maker required deploying funds to
    various third-party exchanges which were inherently unsafe, and further exacerbated by the
    limited protections offered in certain foreign jurisdictions.”

Bankman-Fried will also testify regarding his knowledge about the collapse of FTX. However, Bankman-Fried agreed to appear under the threat of a subpoena after a week of dodging.

Sean Moran is a policy reporter for Breitbart News. Follow him on Twitter @SeanMoran3.


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