US House lawmakers were supposed to get their chance to grill FTX founder Sam Bankman-Fried at a hearing Tuesday morning on the collapse of his digital-asset empire.
(Bloomberg) — US House lawmakers were supposed to get their chance to grill FTX founder Sam Bankman-Fried at a hearing Tuesday morning on the collapse of his digital-asset empire.
Federal authorities beat them to it.
The former crypto billionaire was arrested in the Bahamas on Monday after the US government filed criminal charges amid multiple probes into his possible misconduct. US prosecutors planned to unseal the charges against him in the morning, likely drawing attention from the congressional hearing. On Tuesday, the Securities and Exchange Commission accused Bankman-Fried of defrauding investors and said he concealed FTX’s relationship with his trading firm Alameda Research and used commingled customer funds.
Representative Maxine Waters, chairwoman of the House Financial Services Committee, said the hearing would continue, but she clearly wasn’t pleased at the timing of the arrest, saying that Americans deserved a chance to hear from Bankman-Fried about actions that have “wiped out the hard-earned life savings of so many.”
“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,” she said.
In the lead-up to the House hearing, Bankman-Fried managed to anger the leadership of the Senate Banking Committee, which he had snubbed, and had been feuding with Binance CEO Changpeng “CZ” Zhao, a former rival who helped spark the run on FTX’s exchange that helped force the firm into bankruptcy last month. Zhao called Bankman-Fried a “fraudster” on Twitter, referring to FTX’s downfall as “one of the greatest financial crimes in history.” Bankman-Fried, who also goes by SBF, shot back against Zhao’s claims about prior business dealings between the two companies, calling the Binance CEO a liar.
Bankman-Fried continued that squabble in a draft copy of remarks prepared for the hearing that were obtained by Bloomberg. In those remarks, he took additional shots at CZ, whose company faces its own US government probes over possible illicit activity. He complained about accusations he said Zhao made about him trying to manipulate the price of the stablecoin Tether — claims he called “absurd and false.”
Their sniping reflects what’s at stake as lawmakers gear up for Tuesday’s hearing — now without their star witness — and weigh whether to crack down on the Wild West of crypto after a wave of high-profile collapses. Bankman-Fried had portrayed his company as an ethical actor, while encouraging more scrutiny of competitors like Binance. His abrupt downfall has shattered that image and put the entire industry in the crosshairs.
Lawmakers will have to rely on the testimony of John J. Ray III, the current FTX CEO who is handling the company’s restructuring, for insights on next steps.
Tuesday’s hearing marks the most direct involvement yet by Congress in the sprawling, tangled fallout from FTX’s bankruptcy. The onetime shining star of crypto imploded in November, sending shock waves across the industry and returning the spotlight to the lack of oversight in Washington.
‘Grossly Inexperienced’
Like CZ, Ray hasn’t minced words when referring to Bankman-Fried and his former top lieutenants.
“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,” Ray said in written testimony released Monday in advance of the hearing. The prior management “failed 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.”
Some of the unacceptable practices at FTX included the use of computer software that gave senior managers access to systems that stored customer assets and lacked controls to prevent funds from being redirected, he wrote. Others are the lack of audited financial statements, the commingling of assets and the ability of Alameda to borrow funds for its own trading or investments, according to the prepared testimony.
Bankman-Fried, in his prepared remarks for the hearing, took jabs back at Ray, saying the current leader of FTX had rebuffed his offers to help sift through the wreckage of his failed crypto empire and recover customers’ money. FTX and more than 100 related companies were forced to file for bankruptcy last month.
The unsealed indictment against Bankman-Fried, which will come from the US Attorney’s Office for the Southern District of New York, will shed new light on the alleged criminal activities of the former executive and his company.
In media interviews following FTX’s collapse, Bankman-Fried has denied trying to commit fraud or break the law, though he has owned up to grievous managerial errors at FTX.
Senate Snub
Bankman-Fried hadn’t agreed to testify at another hearing on Wednesday before the Senate Banking Committee, drawing the ire of the panel’s top Democrat and Republican. Senators Sherrod Brown and Pat Toomey said in a statement Monday that they offered Bankman-Fried two different dates to testify but he refused.
“He owes the American people an explanation,” the senators said before Bankman-Fried’s arrest.
–With assistance from David Westin, Emily Wilkins, Gillian Tan and Max Chafkin.
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