Though Sam Bankman-Fried could not attend the congressional hearing virtually due to his recent arrest in the Bahamas, United States lawmakers held no punches criticizing the former FTX CEO and business practices at the firm.
As the sole witness before a hearing of the U.S. House Financial Services Committee on Dec. 13, FTX CEO John Ray shed light on many of the crypto exchange’s activities prior to his takeover as company head on Nov. 11 and what subsequent investigations had revealed. According to Ray, Alameda Research had been dependent on funds from FTX Trading — the international arm of the FTX Group — with “no internal controls and no separateness whatsoever” between the two firms.
The FTX CEO testified that the owners of both Alameda and FTX — referring to Bankman-Fried — could “run free rein” across most of the firms in the FTX Group, with any separation more of a distinction made to the public rather than the reality. Addressing questions from Missouri Representative Ann Wagner, Ray added that FTX’s financial difficulties differed from high-profile failures like those at energy giant ENRON in that there was “no record keeping whatsoever” with many invoices and expense receipts going through Slack.
“[FTX] used Quickbooks — a multi-billion-dollar company using Quickbooks,” said Ray. “Nothing against Quickbooks — very nice tool — just not for a multi-billion-dollar company.”
Many House members addressing the FTX CEO questioned whether Bankman-Fried’s actions may have been willful or due to gross incompetence. Wagner brought up SBF’s “apology tour” in the media following FTX’s bankruptcy, in which he claimed to have made “a lot of mistakes” in transferring FTX users to Alameda.
“I don’t find any such statements to be credible,” said Ray.
Texas Representative Al Green quoted Martin Luther King Jr. in a seeming attempt to understand Bankman-Fried’s actions — “nothing in all the world is more dangerous than sincere ignorance and conscientious stupidity” — and whether there was “malfeasance” at FTX.
“Mr. Bankman-Fried has pretty much indicated that he just made a big mistake, that he was doing the best that he could to be a servant of great service to humankind,” said Green. “I find it difficult to believe we’re dealing with conscientious stupidity.”
Oklahoma Representative Frank Lucas added:
“Bankman-Fried clearly tried to exhibit himself as the brightest of the bright, but being bright neither makes you honest nor a fool, does it?”
Though Bankman-Fried was not on hand to testify before the committee, lawmakers confirmed the contents of written testimony leaked following his arrest. Missouri Representative Emanuel Cleaver called SBF’s immediate use of profanity in his opening statement “disrespectful” and “absolutely insulting” to Congress. The lawmaker added he would be considering introducing a resolution to rename cryptocurrency “creepy dough currency” in light of recent events.
Related: FTX was an 'utter failure of corporate controls at every level of an organization', says new CEO
The House committee hearing was the second exploring the collapse of FTX following a Dec. 1 hearing of the Senate Agriculture Committee, in which Commodity Futures Trading Commission chair Rostin Behnam was the sole witness. The CFTC and Securities and Exchange Commission later filed separate lawsuits against SBF, FTX and Alameda for fraud.
The Senate Banking Committee has also scheduled a hearing for Dec. 14, with Hollywood star Ben McKenzie, investor Kevin O'Leary, law professor Hilary Allen and Jennifer Schulp, the director of financial regulation studies at the Cato Institute’s Center for Monetary and Financial Alternatives, appearing as witnesses. It’s unclear whether lawmakers will call on Bankman-Fried to testify amid his current legal issues.
Ranking member Patrick McHenry said the committee planned to hold a second hearing on the collapse of FTX sometime in 2023.