Istanbul: The new chief executive officer of troubled cryptocurrency exchange platform FTX plans to tell the U.S. Congress that the company had "unacceptable management practices" under its former CEO Sam Bankman-Fried, according to his prepared remarks released Monday.
FTX Group’s collapse appears to be a result of "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," John J. Ray III will say in his testimony before the House Financial Services Committee on Tuesday.
Some of the unacceptable practices include senior management's access to stored customer assets without security controls to prevent them from redirecting those assets, storing a few private keys to access hundreds of millions of dollars in crypto assets without effective security controls or encryption, lack of documentation for transactions of nearly 500 investments, the absence of audited financial statements, and the lack of personnel in financial and risk management, according to Ray.
Noting his role in the restructuring of energy giant Enron following its bankruptcy, Ray wrote: "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."
Ray has more than 40 years of legal and restructuring experience, serving as director of restructuring in some of the largest corporate bankruptcies in history and overseeing situations involving allegations of criminal activity and embezzlement.
The sudden collapse of FTX, once the world's third-largest cryptocurrency exchange by daily trading volume, left its users and investors in the dark and caused a rapid meltdown in the cryptocurrency market last month.
Bankman-Fried was arrested by Bahamian authorities on Monday evening at the request of the US Government, a US attorney confirmed.
Bankman-Fried was arrested based on a sealed indictment filed by the Southern District Court of New York, the court said in a statement citing US attorney Damian Williams. The indictment will likely be unsealed on Tuesday morning, Williams said.
Separately, the Office of the Attorney General of the Bahamas said that Bankman-Fried faces potential extradition to the US. The former FTX CEO’s arrest comes just ahead of a Congressional hearing on Tuesday, where Bankman-Fried was expected to testify remotely. He had also reportedly refused to testify at a Senate Banking Committee hearing on Wednesday over the FTX collapse.
Bankman-Fried had attempted to downplay accusations of fraud, instead attributing the alleged misappropriation of customer funds to poor capital controls and accounting errors. He had resigned as FTX’s CEO on the same day as the bankruptcy filing.
