John J. Ray, CEO of the FTX debtors will testify tomorrow before the U.S. House Committee on Financial Services at a hearing entitled "Investigating the Collapse of FTX, Part I." Sam Bankman-Fried, the former CEO of the FTX Group, is scheduled to appear as well, albeit remotely.
Mr. Ray's prepared remarks are available online and are a worthwhile read to learn more about the controls and governance failures at FTX, as well as Ray's restructuring plan.
Specific deficiencies at FTX Group identified by Ray, among others, include:
- Senior management access to systems that stored customer assets, without controls to prevent senior management from redirecting those assets;
- The ability of the Alameda hedge fund to borrow funds held at FTX.com for its own trading without effective trading limits;
- Commingling of assets;
- Lack of documentation for nearly 500 investments made by the FTX Group;
- Absence of audited or reliable financial statements; and
- Absent of independent governance of the FTX Group.
Mr. Ray described his restructuring plan as having five key objectives:
(1) implementation of controls, which is underway;
(2) asset protection and recovery, which has so far resulted in securing over $1 billion in digital assets to protect against the risk of unauthorized transfers;
(3) transparency and investigation, including working with U.S. and foreign regulatory and law enforcement authorities to gather evidence to help determine the events leading to the collapse of the FTX Group;
(4) efficiency and coordination among the various FTX insolvency proceedings occurring globally;
(5) maximization of value for all stakeholders through either a reorganization or sale of various assets of the FTX Group, including investments and digital assets.
Mr. Ray's prepared remarks also shed light on the rationale for including FTX US in the US Chapter 11 petition. Mr. Ray states "because FTX US was not operated independently of FTX.com. Chapter 11 protection was necessary both to avoid a 'run on the bank' at FTX US and to allow [my] team the time to identify and protect its assets." Mr. Ray also describes specific facts he and his team have been able to determine regarding commingling of assets, FTX Group expenditures, and loans and payments to FTX Group insiders, in excess of $1 billion.
The hearing begins at 10:00 AM ET on December 13, 2022, and can be viewed online here.
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