FTX employees did invoicing and expenses over Slack and used QuickBooks, consumer-level tax software, to handle its accounting, the company's new CEO John Ray III said during Tuesday's House Financial Services Committee hearing.
"Nothing against QuickBooks. Very nice tool," Ray said. "It's not for a multibillion dollar company."
It's the type of critique that crystalizes what Ray has said was the root of the problem at FTX. In prepared testimony, Ray laid the collapse of the exchange at the feet of “a very small group of grossly inexperienced and unsophisticated individuals,” referring to FTX founder Sam Bankman-Fried and his inner circle.
Ray further testified today that FTX had "virtually no internal controls and no separateness whatsoever," to monitor its leverage or ties to trading firm Alameda Research, a company also founded by Bankman-Fried. The new leadership team at FTX following its bankruptcy has been able to secure over $1 billion worth of assets in "cold wallets, in a secure location," Ray said, but he estimates it will take weeks and months to locate the rest.
His predecessor, the disgraced Bankman-Fried, was scheduled to give testimony after Ray during the D.C. hearing, but was arrested in the Bahamas last night at the request of U.S. authorities who are already planning his extradition. U.S. prosecutors have levied eight criminal charges against Bankman-Fried, including wire fraud and conspiracy to commit money laundering.
FTX filed for bankruptcy on November 11, a week after news broke that Alameda counted billions worth of illiquid FTX Token (FTT) on its balance sheet. The news shook consumer confidence in FTX, and users rushed to withdraw their funds from the exchange. The resulting liquidity crisis eventually led FTX to suspend withdrawals.
Bankman-Fried sought deals to save FTX with both Binance CEO Changpeng Zhao (also known as "CZ") and Tron founder Justin Sun, but both attempts fell through. Bankman-Fried then resigned and more than 130 entities owned by the FTX Group sought Chapter 11 protection.
Rep. Patrick McHenry (R-NC), ranking member of the financial services committee, said today that the group still intends to pursue answers from Bankman-Fried.
"We've heard everything but the truth. Tweets, DMs, and interviews are no substitute for the facts," he said, adding later that he looks forward to "getting his lies here on the record, under oath," referring to Bankman-Fried.
McHenry also echoed criticism from the industry of the U.S. Securities and Exchange Commission's lack of a clear regulatory framework.
"We know the Securities Exchange Commission Chair Gensler's regulation by enforcement approach is not going to stop bad actors," he said. "Next year I look forward to hearing from Mr. Gensler early and often."
Earlier this month, House Financial Services Committee Chair Maxine Waters (D-CA), thanked Bankman-Fried for being “candid” in the many interviews he’s done in the past month and asked him to testify before the committee. In a statement following Bankman-Fried's arrest yesterday, Waters questioned the timing of the action.
“Although Mr. Bankman-Fried must be held accountable, the American public deserves to hear directly from Mr. Bankman-Fried about the actions [that have] harmed over one million people, and wiped out the hard-earned life savings of so many,” Waters said in a statement. “The public has been waiting eagerly to get these answers under oath before Congress, and the timing of this arrest denies the public this opportunity.”
His testimony today was meant to be Bankman-Fried’s first official appearance in D.C.—albeit, virtually—since the sudden collapse of his empire last month, which includes crypto exchange FTX and quantitative trading firm Alameda Research. He agreed to speak before the House committee today, but declined an invitation to testify at Wednesday’s Senate Banking Committee.