FTX CEO Blasts Previous Leadership As Inexperienced And Unsophisticated

The collapse of FTX was caused by “a very small group of grossly inexperienced and unsophisticated individuals,” the crypto exchange’s new CEO, John Ray III, said today during a House Financial Services Committee hearing. Ray appeared before Congress alone as the former CEO of now-bankrupt FTX, Sam Bankman-Fried, was arrested yesterday in the Bahamas.

A Unique Position to Fail

Ray’s testimony stated that FTX was “in a unique position to fail” and named the key trigger in the collapse of the exchange as the “unlimited ability” of Bankman-Fried and his associates to control user funds for their own use, describing the company as an “absolute concentration of inexperienced, unsophisticated individuals.

He told members of a congressional committee that FTX employees did invoices and expenses over Slack and used QuickBooks, consumer-level tax software, to handle its accounting.

Ray said he had “never seen such an utter lack of record keeping” with “no internal controls whatsoever.” Later in his testimony, Ray said, “At the end of the day, we’re not going to be able to recover all the losses.”

When comparing the FTX debacle to Enron, Ray, who also oversaw Enron’s bankruptcy proceedings, said that the Enron scandal involved highly sophisticated crimes, while FTX consists of “old-fashioned embezzlement” that is not sophisticated at all. When asked if he believed this could be a problem with other exchanges, Rays said, ”every company is different” and that FTX was “uniquely positioned to fail.” 

Though he was repeatedly asked his opinion on regulation, he stated that he was not an expert on regulation and did not want to comment. However, he agreed, “We need records, we need controls, we need to segregate people’s money.”

Congress Slams SBF For Using Inappropriate Language

Forbes published the draft of Sam Bankman-Fried’s testimony, which began with: ”I f****d up.” Congress criticized him for the inappropriate language that could not be read before the committee.

In his testimony, he said, “I deeply regret giving in to pressure to sign forms that precipitated the Chapter 11 fining just a few days after FTX International became potentially solvent.”

He went on to say that he believes FTX US is solvent and could pay off all of its creditors in full. Crypto exchange Binance was cited as one of many reasons for the FTX fall.

As he concluded his testimony, he wrote, ‘…I need to put on the official Congressional Record that I am, and for most of my adult life have been, sad.”

The Bottom Line

In his testimony, Bankman-Fried emphasized that he was unaware of everything going on in his company. After quoting Martin Luther King Jr about conscientious stupidity, Representative Al Green stated that, given Bankman-Fried’s education, the incident was “more than sincere ignorance.” The Southern District of New York has charged Bankman-Fried with wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy, and money laundering.