Shortly after U.S. regulators on Tuesday charged FTX founder Sam Bankman-Fried with defrauding investors, its new chief executive told lawmakers the crypto exchange's implosion stemmed from poor management practices and inexperienced individuals at the helm.
"The FTX group's collapse appears to stem from absolute concentration of control in the hands of a small group of grossly inexperienced, non-sophisticated individuals," said John Ray, who was named CEO of FTX after Bankman-Fried stepped down, and the company filed for bankruptcy on Nov. 11.
Ray also said there was virtually no distinction between the operations of FTX and Alameda Research, Bankman-Fried's crypto trading firm, which maintained close ties with his exchange.
"I've just never seen an utter lack of record keeping - absolutely no internal controls whatsoever," Ray told the U.S. House of Representatives Financial Services Committee.
It will take weeks, perhaps months, to secure all the group's assets, Ray said.
Bankman-Fried was arrested Monday evening in the Bahamas and was set to appear before a magistrate Tuesday. U.S. federal prosecutors on Tuesday alleged the he committed fraud and violated campaign finance laws, and FTX's founder and former CEO also faces additional charges by U.S. regulators.
The Bahamas attorney general's office said it expects Bankman-Fried will be extradited to the United States.
Ray said in his testimony that he had hired a new chief financial officer, a head of human resources and administration, and a head of information technology. He has also appointed a board of directors, which is chaired by former U.S. Attorney Joseph Farnan.
Since he took over as CEO, Ray said he has established that customer assets at FTX were commingled with those of Alameda Research. Client funds were used to engage in margin trading, which exposed customers to massive losses, he said.
Ray also addressed why FTX US was included in the bankruptcy filing. Bankman-Fried has expressed confusion about that in media interviews, claiming the company's U.S. entity was financially sound.
But Ray said such a step was necessary to avoid a "run on the bank" and to allow FTX's new leadership to identify and protect its assets.
Bankman-Fried had also been scheduled to appear before the committee on Tuesday, and his testimony had been highly anticipated.
"Unfortunately, the timing of his arrest denies the public the opportunity to get the answers they deserve," said the panel's chair, Democratic U.S. Representative Maxine Waters.
"Rest assured that this committee will not stop until we uncover the full truth behind the collapse of FTX just a few months ago."
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