FTX went on a $5 billion 'spending binge' in the year before its collapse, buying up businesses and investments that are likely now worth 'only a fraction' of that amount, its new CEO has told lawmakers.
The failed company squandered the eye-watering amount 'in late 2021 through 2022' before its collapse in November, leaving around one million customers owed billions of dollars.
John J Ray III, the new CEO of FTX appointed to guide it through bankruptcy, made the disclosure in testimony to the House Financial Services Committee.
The committee will hear from Ray on Tuesday, as well as from disgraced FTX founder and former CEO Sam Bankman-Fried, who faces criminal charges over the company's demise.
Ray, who is leading a team of investigators who are trying to recoup investors' money, also repeated damning claims he's made previously about the calamitous lack of corporate controls at FTX.
Ray helped deal with the fallout from the Enron scandal, once the largest corporate bankruptcy in US history. Despite tackling a disaster of that magnitude, he described the FTX collapse as unprecedented.
He also says that more than $1 billion of digital assets have been secured by the bankruptcy team. But that is far less than the $10 billion that some estimate is owed to clients.
In a statement to the committee on Monday, Ray said: '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.'
He blasts the leadership's failure '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'.
The withering assessment is similar to the one Ray gave in his original bankruptcy filings on November 11.
In the testimony to Congress, Ray also lists a litany of 'unacceptable management practices'.
In his own words, they include:
• None The use of computer infrastructure that gave individuals in senior management access to systems that stored customer assets, without security controls to prevent them from redirecting those assets
• None The storing of certain private keys to access hundreds of millions of dollars in crypto assets without effective security controls or encryption
• None The ability of Alameda, the crypto hedge fund within the FTX Group, to borrow funds held at FTX.com to be utilized for its own trading or investments without any effective limits
• None The lack of complete documentation for transactions involving nearly 500 investments made with FTX Group funds and assets
• None The absence of audited or reliable financial statements
• None The lack of personnel in financial and risk management functions, which are typically present in any company close to the size of FTX Group
• None The absence of independent governance throughout the FTX Group
Ray told lawmakers investigating the FTX scandal that his role is 'working on behalf of the FTX Group to achieve one fundamental goal: maximizing value for FTX's customers and creditors so that we can mitigate, to the greatest extent possible, the harm suffered by so many'.
He said the bankruptcy process includes implementing the corporate controls which weren't present, asset protection and recovery and 'maximization of value for all stakeholders'
Ray said 'the scope of the investigation underway is enormous' and that dozens of terabytes of data is under review, including records of billions of transactions.
He adds: 'Questions also have been raised about what I think of the many opinions expressed by former CEO Sam Bankman-Fried and his recent offers to assist in the recovery effort.
'I will not comment on his statements other than to say that this is a professional investigation that is proceeding in a professional manner.
'We have a fact-finding process in place, and we will seek information from Mr. Bankman-Fried and others through that process, as appropriate.'
Outlining what investigators have found out so far, Ray says 'customer assets from FTX.com were commingled with assets from the Alameda trading platform'.
The alleged misuse of FTX money by Alameda is a key focus of investigators who are considering criminal charges against Bankman-Fried.
'Alameda used client funds to engage in margin trading which exposed customer funds to massive losses,' Ray's testimony says.
'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...
'Loans and other payments were made to insiders in excess of $1 billion...
'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.'
FTX founder Sam Bankman-Fried says he will testify to Congress remotely because he is 'booked up' and is worried about 'paparazzi' in D.C. - but insists he won't get arrested
By Rob Crilly, Senior U.S. Political Reporter and Melissa Koenig For Dailymail.Com
Disgraced former FTX chief executive Sam Bankman-Fried said Monday he will not appear in person before Congress on Tuesday because he is 'quite overbooked' — and will instead answer questions via zoom from his luxury home in the Bahamas.
Members of the House Financial Services Committee will quiz him on the collapse of the digital currency exchange that was until recently worth tens of billions of dollars.
The 30-year-old billionaire last week confirmed he would give evidence, but in a Twitter spaces interview said he was worried about the attentions of paparazzi if he traveled to Washington, D.C.
He said he was not planning to appear before a Senate hearing later in the week, but played down the idea he was avoiding setting foot on U.S. soil because of the risk of arrest.
'It's also frankly pretty important time for me to be here. I'm quite overbooked and was not planning to be testifying until like very recently,' he told interviewers from the Unusual Whales platform.
'And then the other thing that I will say is ... from a security standpoint ... It's very difficult for me to move right now and travel because just like the paparazzi effect is quite large.'
Does he fear being detained?
'I don't believe I would be but I haven't done a deep dive into that,' he replied.
'At some point it's something I have to think harder about.'
Bankman-Fried has kept up a rapid pace of interviews as he defends his actions. And on Monday, he even admitted that he was playing computer games as he was quizzed in an off-camera interiew.
Last month, DailyMail.com tracked him down to his $40 million penthouse, which takes up the entire top floor of an ocean-front apartment block in the ultra-exclusive development of The Albany on the island of New Providence.
With 7,500 square feet, five bedrooms, 7.5 bathrooms and a pool directly in front of the master suite, it is the jewel in one of the highly-secure community's landmark buildings, The Orchid.
His once-popular cryptocurrency exchange filed for bankruptcy last month after Bankman-Fried used at least $1billion of customer funds to pay off debts for its trading arm, Alameda Research. Customers then tried to withdraw all of their assets as the trading platform started to lose money.