Investigating the Collapse of FTX, Part I (U.S. House Committee on Financial Services)

Hearing	Investigating the Collapse of FTX, Part I
Committee	U.S. House Committee on Financial Services
Date	December 13, 2022

 

Hearing Takeaways:

•  The Collapses of FTX and Alameda Research: The hearing focused on the recent collapses of cryptocurrency exchange FTX and its affiliated hedge fund Alameda Research (which was owned by former FTX CEO Sam Bankman-Fried). The hearing focused on how FTX’s former management team had engaged in risky activities with very minimal oversight that had caused as many as one million users to lose access to their cryptocurrency holdings and potentially the holdings themselves. Current FTX CEO John Ray III estimated that FTX’s customer losses were in excess of $7 billion. Of note, Full Committee Ranking Member Patrick McHenry (R-NC) stated that the Committee would continue investigating FTX’s collapse when Republicans retake the majority in the U.S. House of Representatives in the upcoming Congress.
  • Improprieties at Alameda Research: Committee Members and Mr. Ray noted how Alameda Research had improperly accessed funds from the customers of FTX.com (which was the exchange for non-U.S. citizens) to support their risky trades and investments. The failure of these risky trades and investments had contributed to FTX’s insolvency. They also highlighted how FTX had requested that its customers deposit their exchange funds with Alameda Research at one point and expressed uncertainty as to whether these deposited funds were ultimately transferred to FTX.
  • Lack of Corporate Governance Controls: Committee Members and Mr. Ray also expressed concerns over the lack of corporate governance controls at FTX and Alameda Research. Mr. Ray indicated that these poor controls included a lack of list of bank accounts, a lack of a complete list of employees and their functions, an extensive use of independent contractors (as opposed to employees), and gaps and total absences of insurance. He testified that FTX’s collapse was one of the worst bankruptcies he had managed from a documentation standpoint and commented that this lack of documentation had made it difficult to track and trace assets from FTX and its affiliated entities. 
  • Minting and Manipulation of FTT Tokens: Several Committee Democrats raised concerns over FTX’s minting of its own tokens (known as FTT tokens) and over how Alameda Research had used these tokens as collateral for their own trades. They suggested that FTX may have manipulated the price of the FTT tokens to enable Alameda Research to engage in riskier trades. Mr. Ray commented that it was very risky for a company to use assets that they had created as collateral. He also speculated that FTX’s customers did not realize that FTX had been using its own assets as a source of collateral.
• FTX’s Bankruptcy Process: Committee Members expressed interest in FTX’s bankruptcy process and potential irregularities at the time of the filing. Current FTX CEO John Ray III testified that FTX had implemented a five-part bankruptcy plan and that he had been able to secure over $1 billion of FTX’s assets as part of the bankruptcy process. He indicated that these assets were being held in cold wallets in a secure location. He stated that this recovery of FTX’s remained an ongoing process that would take weeks or months to complete. He also expressed confidence that the cross-border nature of the bankruptcy would not complicate the resolution of the bankruptcy process.
  • Hack of FTX’s Assets Post-Bankruptcy Filing: Committee Members noted how hackers had stolen $477 million in tokens from FTX shortly following FTX’s bankruptcy filing. Mr. Ray stated that his team was relying upon forensic and cybersecurity experts to investigate the hack and to track the stolen cryptocurrencies. He also indicated that law enforcement agencies were involved in addressing this hack.
  • The Bahamian Government’s Actions Post-Bankruptcy Filing: Committee Members expressed concerns over how former FTX CEO Sam Bankman-Fried had provided Bahamian regulators with an advanced warning of FTX’s bankruptcy filing. Mr. Ray noted how over $100 million had been released from FTX accounts to approximately 1,500 Bahamian customers. Committee Members also expressed concerns over how the Bahamian government had instructed the previous FTX management team to mint approximately $300 million in FTT tokens and to transfer these new tokens to cold storage. Mr. Ray confirmed that this minting activity and transfer of funds had occurred post-bankruptcy when the automatic stay had been in effect.
  • Complications Associated with Digital Assets: Committee Members and Mr. Ray stated that the fluctuating nature of cryptocurrency values would create complications for FTX’s bankruptcy. Mr. Ray indicated that his team would assess FTX customer accounts based on the date of FTX’s bankruptcy filing. He also noted how cryptocurrencies stored in hot wallets were vulnerable to hacking.
  • Management of FTX’s Solvent Entities: Mr. Ray mentioned how there were several FTX-affiliated entities (including FTX Japan and LedgerX) that were regulated and solvent. He testified that LedgerX will ultimately be sold.
• Concerns Regarding the Activities of FTX, Alameda Research, and Former FTX CEO Sam Bankman-Fried: Committee Members and Current FTX CEO John Ray III raised concerns over how FTX, Alameda Research, and former FTX CEO Sam Bankman-Fried had operated. They suggested that these activities should have been indicators of poor management or even fraud. 
  • FTX’s Investments: Mr. Ray noted that FTX had spent $5 billion on a myriad of businesses and investments in 2021 and 2022. He commented that many of these businesses and investments might now only be worth a fraction of what FTX had paid for them.
  • FTX’s Questionable Loans to Corporate Insiders: Committee Members and Mr. Ray expressed concerns over how FTX had made loans and other payments to corporate insiders in excess of $1.5 billion. Mr. Ray stated these loans were often provided with minimal documentation and testified that there was no information at the current time regarding the purpose or use of the funds stemming from the loans.
  • FTX’s Tax Compliance: Committee Members also expressed interest in whether FTX had properly filed its U.S. taxes with the U.S. Internal Revenue Service (IRS). Mr. Ray mentioned that his team had hired Ernst & Young to review FTX’s tax returns and indicated that this review is ongoing. He also stated that his team would provide FTX’s IRS filings to the regulatory agencies investigating FTX.
  • FTX’s Accounting and Auditing Practices: Committee Members contended that FTX’s accounting practices were very basic and minimal for a company of its size. Rep. French Hill (R-AR) raised particular concerns over FTX’s use of two auditing firms: Prager Metis and Armanino. 
  • FTX’s Relationship with IEX: Rep. Tom Emmer (R-MN) expressed interest in learning more about FTX’s involvement with stock exchange IEX and highlighted how there was uncertainty as to whether FTX’s had acquired or had merely invested in IEX. Mr. Ray stated that he would need to follow up with the Committee regarding the relationship between the two entities.
  • FTX’s Expensive Advertising Campaigns and Celebrity Endorsements: Rep. Rashida Tlaib (D-MI) and Rep. Stephen Lynch (D-MA) raised concerns over FTX’s significant expenditures on celebrity endorsements and arena naming rights. They stated that these advertising expenditures were meant to target minority communities.
  • Alameda Research’s Investment in Farmington State Bank: Rep. Blaine Luetkemeyer (R-MO) and Rep. Lance Gooden (R-TX) questioned Alameda Research’s 2020 investment in Farmington State Bank (which has since changed its name to Moonstone Bank). They called this investment suspicious given the bank’s small size and asserted that Alameda Research had overpaid for its stake in the bank. Rep. Luetkemeyer expressed interest in exploring whether Alameda Research had made this investment to facilitate money laundering.
  • Alameda Research’s Involvement in Unsafe Exchanges: Mr. Ray and Rep. Gooden also discussed how Alameda Research’s business model as a market maker had required funds to be deployed to various third-party exchanges that were inherently unsafe. They noted how many of these exchanges were in foreign jurisdictions that did not provide protections for these funds.
  • Ties Between FTX and its Affiliated Non-Profit Organizations: Rep. Andy Barr (R-KY) expressed interest in learning whether the FTX Foundation and its various affiliates had been established properly as non-profit organizations and were completely separate from FTX’s for-profit entities. Mr. Ray stated that his team was looking into the operations of the FTX Foundation and its affiliates. He also noted how the FTX Foundation and its affiliates had received funds from Alameda Research.
  • Former FTX CEO Sam Bankman-Fried’s Political Influence: Rep. Brad Sherman (D-CA) cautioned that former FTX CEO Sam Bankman-Fried had made significant political contributions to help advance his policy goals. He also suggested that FTX’s bonuses and loans to its management team might have been used to facilitate illegal campaign contributions.
  • Involvement of Former FTX CEO Sam Bankman-Fried’s Family in FTX: Rep. Bill Huizenga (R-MI) expressed interest regarding the involvement of former FTX CEO Sam Bankman-Fried’s family in FTX. Mr. Ray noted that Mr. Bankman-Fried’s father Joseph Bankman had provided legal advice to FTX and had received payments from FTX.
• Concerns Regarding the Timing of Former FTX CEO Sam Bankman-Fried’s Arrest: Several Committee Members questioned the U.S.’s decision to arrest and charger former FTX Sam Bankman-Fried immediately preceding the hearing. They noted how Mr. Bankman-Fried had been set to testify under oath at the hearing and that the arrest had prevented this testimony. They stated that Mr. Bankman-Fried’s testimony before the Committee could have provided U.S. prosecutors with information and sworn statements that could help them to build their cases against FTX.
• Concerns Regarding Cryptocurrencies, Digital Assets, and Federal Policies: Committee Members also used the hearing to raise concerns over cryptocurrencies, digital assets, and federal policies. Full Committee Chairman Maxine Waters (D-CA) asserted that the recent failures of many cryptocurrency firms (including TerraUSD, Celsius, BlockFi, FTX, and Alameda Research) highlighted the importance of having the Committee address cryptocurrencies. While current FTX CEO John Ray III generally avoided providing policy recommendations for addressing cryptocurrencies and digital assets, he stated that FTX’s collapse had demonstrated the importance of recordkeeping, controls, and segregation of funds were necessary within the context of cryptocurrency holdings.
  • Criticisms of Cryptocurrencies: Several Committee Democrats, including Rep. Brad Sherman (D-CA), Rep. Emanuel Cleaver (D-MO), Rep. Juan Vargas (D-CA), Rep. Rashida Tlaib (D-MI), and Rep. Jesús “Chuy” García (D-IL) expressed hostility towards cryptocurrencies. They stated that these assets lacked any inherent value and facilitated illicit activities. Full Committee Vice Chair Jake Auchincloss (D-MA) added that he was becoming increasingly skeptical of cryptocurrencies and asserted that the purported benefits of blockchain technology were failing to materialize. Moreover, Rep. Sylvia Garcia (D-TX) and Rep. Jesús “Chuy” García (D-IL) expressed concerns that cryptocurrency collapses disproportionately harmed low-income and minority communities given how these communities were overrepresented in the cryptocurrency space. However, Full Committee Ranking Member Patrick McHenry (R-NC) and Rep. Tom Emmer (R-MN) attributed FTX and Alameda Research’s failures to its fraud and management issues. They contended that the failure of these entities should not serve as an indictment on digital assets and blockchain technology.
  • Criticism of U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler’s Regulatory Approach Towards Cryptocurrencies: Committee Republicans and Rep. Josh Gottheimer (D-NJ) criticized the SEC for failing to provide regulatory clarity to the digital assets space and asserted that this inaction was partially responsible for FTX’s collapse. They further contended that this lack of regulatory clarity had driven many cryptocurrencies to domicile outside of the U.S. in jurisdictions with weaker consumer protections.

Hearing Witnesses:

1. Mr. John J. Ray III, Chief Executive Officer, FTX Group

Member Opening Statements:

Full Committee Chairman Maxine Waters (D-CA):

• She first expressed hope that the arrest of former FTX CEO Sam Bankman-Fried would mean that he would be held accountable for his fraud.
  • She noted how Mr. Bankman-Fried had been scheduled to testify under oath at the current hearing and lamented how the timing of Mr. Bankman-Fried’s arrest had prevented this testimony.
• She then discussed how FTX had recently been one of the largest cryptocurrency exchanges in the world with a valuation of $32 billion and noted how FTX was now bankrupt and possibly looted.
  • She stated that FTX had misused approximately $10 billion in customer funds and owed creditors at least $3 billion.
• She mentioned how as many as one million people (including many Americans) were currently locked out of their FTX accounts.
  • She indicated that these people may only recover a fraction or even none of the money in their FTX accounts.
• She remarked that FTX’s collapse was also notable considering the company’s “total disregard” for standard business practices, governance, and risk management, as well as the company’s criminal conduct.
  • She mentioned how FTX’s current CEO John Ray III had stated that he had never seen such a complete lack of corporate controls and such a complete absence of trustworthy information as had occurred with FTX.
• She stated that she was “deeply troubled” over the ability of FTX employees to steal customer funds to finance their lavish lifestyles.
• She also expressed interest in investigating FTX’s “deep ties” to Alameda Research, which she explained was a cryptocurrency hedge fund that was predominantly owned by former FTX CEO Sam Bankman-Fried.
  • She commented that Alameda Research had “gambled away” billions of dollars in customer assets that had been inappropriately transferred from FTX.
• She further expressed interest in exploring how current FTX CEO John Ray III were working to recover funds for FTX’s former customers.
• She then remarked how the Committee under her leadership had focused on the growth and popularity of cryptocurrencies and commented that FTX’s recent failure had highlighted many of the Committee’s concerns regarding cryptocurrencies.
  • She mentioned how Committee Democrats had created a Digital Assets Working Group in 2021 to explore the underlying technologies and finance applications for digital assets and to learn about the risks posed by cryptocurrencies to customers, consumers, and the economy.
• She mentioned how she was working on bipartisan legislation with Full Committee Ranking Member Patrick McHenry (R-NC) to address stablecoin risks.
  • She asserted that the recent failures of many cryptocurrency firms (including TerraUSD, Celsius, BlockFi, FTX, and Alameda Research) highlighted the importance of addressing cryptocurrencies.
• She lastly highlighted how the Committee’s work on cryptocurrency issues had pushed enforcement agencies across the U.S. to take greater actions against bad actors within the digital assets space.
  • She also applauded the SEC for authorizing separate charges relating to former FTX CEO Sam Bankman-Fried.

Full Committee Ranking Member Patrick McHenry (R-NC):

• He remarked that the current hearing was bipartisan in nature and noted how the Committee had invited two witnesses to testify at the hearing: current FTX CEO John Ray III and former FTX CEO Sam Bankman-Fried.
  • He noted however that Mr. Bankman-Fried was unable to make the current hearing and expressed interest in having him testify before the Committee at a later date.
• He stated that while former FTX CEO Sam Bankman-Fried’s arrest was “welcome news,” he commented that this arrest did not provide clarity into the full extent of FTX’s misdeeds.
  • He expressed interest in having the Committee better understand the flow of funds between FTX, Alameda Research, and FTX’s 130 affiliated entities.
• He also remarked that the Committee must work to prevent future frauds and commented that FTX’s fraud appeared to be different in that it used a new type of technology.
  • He asserted however that the fact that FTX’s fraud had involved cryptocurrencies did not mean that cryptocurrencies themselves were fraudulent in nature.
• He expressed his belief in the promise of digital assets and blockchain technology applications and mentioned how he had worked to develop clear rules for the digital assets space.
  • He commented that these rules would protect U.S. consumers and investors and support domestic innovation.
• He asserted that SEC Chairman Gary Gensler’s “regulation by enforcement” approach would fail to stop bad actors and expressed interest in providing additional clarity on the application of U.S. securities laws to trading platforms.
  • He accused SEC Chairman Gensler of failing to properly apply U.S. securities laws to trading platforms.

Witness Opening Statements:

Mr. John J. Ray III (FTX Group):

• He noted how he had assumed FTX’s CEO role on November 11, 2022 and asserted that Chapter 11 bankruptcy had constituted the best course of action for preserving FTX’s remaining value.
  • He testified that FTX had implemented a five-part bankruptcy plan and stated that the overarching objective of this plan was to maximize value for FTX’s customers and creditors.
• He attributed FTX’s collapse to the “absolute” concentration of control in the hands of a small group of grossly inexperienced and unsophisticated individuals that had failed to implement any necessary controls for a company entrusted with other people’s money or assets.
  • He indicated that some of FTX’s unacceptable management practices included the use of computer infrastructure that provided individuals in senior management with access to systems that stored customer assets without security controls to prevent them from redirecting the assets, the storing of certain private keys without effective security controls or encryption, the ability of Alameda Research to borrow funds held at FTX.com without any limits, the comingling of assets, the lack of complete documentation for transactions, the absence of audited and reliable financial statements, the lack of personnel in financial and risk management functions, and the absence of independent governance throughout the FTX group.
• He stated that FTX’s previous lack of corporate infrastructure posed challenges for his team as it worked to navigate FTX through the bankruptcy process.
• He testified however that his team had instituted “meaningful” steps to gain command and control of FTX’s finances and that his team was making progress in understanding FTX’s situation.
  • He added that his team would share its findings with interested and affected parties throughout the bankruptcy process.
• He remarked that the scope of his team’s investigation was “truly enormous” and noted how it involved detailed tracing of money flows and asset transfers from the time of FTX’s founding and complex technological efforts to identify and trace cryptocurrency assets.
  • He testified that his team was currently collecting and reviewing dozens of terabytes of documents and data, including billions of individual transactions.
  • He added that his team was leveraging sophisticated technology and expertise to identify and trace additional transactions and assets.
• He stated that customer assets held on the FTX.com were comingled with assets on Alameda Research’s trading platform.
• He also indicated that Alameda Research had used FTX customer funds to engage in margin trading.
  • He commented that this margin trading had exposed FTX customer funds to “massive” losses.
• He further testified that FTX had gone on a “spending binge” in 2021 and 2022 and noted how the company had spent $5 billion on a myriad of businesses and investments.
  • He commented that many of these businesses and investments might now only be worth a fraction of what FTX had paid for them.
• He indicated that FTX had made loans and other payments to corporate insiders in excess of $1.5 billion.
• He discussed how Alameda Research’s business model as a market maker had required funds to be deployed to various third-party exchanges that were inherently unsafe.
  • He noted how many of these exchanges were in foreign jurisdictions that did not provide protections for these funds.
• He lastly stated that his ability to comment on many matters relating to FTX’s collapse would be inherently limited due to the state of FTX’s records, ongoing bankruptcy proceedings, and numerous law enforcement investigations into FTX.

Congressional Question Period:

Full Committee Chairman Maxine Waters (D-CA):

• Chairman Waters noted how FTX had moved customer funds held at its exchange to Alameda Research, which was a hedge fund owned almost entirely by former FTX CEO Sam Bankman-Fried. She commented that this movement of funds had enabled Alameda Research to effectively gamble with FTX customer funds without the knowledge or consent of FTX’s customers. She noted that if FTX had been registered as a securities exchange, then FTX would have been subjected to securities laws requiring the segregation of customer assets. She commented that these laws would have prevented conflicts of interest from arising. She also noted how former FTX CEO Sam Bankman-Fried appears to have tried to hide the linkages between FTX and Alameda Research. She asked Mr. Ray to indicate whether there was any evidence of this coverup. She also asked Mr. Ray to indicate whether there was any evidence that there was any independent governance of Alameda Research that was separate from FTX’s exchange business.
  • Mr. Ray stated that the operations of FTX were not segregated from the operations of Alameda Research and commented that both the exchange and the hedge fund were operated as one company. He remarked that there had not existed a distinction between the operations of the company and who controlled those operations.
• Chairman Waters then noted how a bankruptcy filing had revealed that former FTX CEO Sam Bankman-Fried had received a $1 billion personal loan from Alameda Research. She noted that Mr. Bankman-Fried had been unaware of the loan’s repayment terms and interest details during a meeting with Committee staff. She also mentioned that Mr. Bankman-Fried had been unable to remember who had authorized this loan during his meeting with Committee staff. She noted how Mr. Bankman-Fried had claimed to have reinvested this money into FTX and had justified the personal loan as a way to avoid directly connecting Alameda Research with FTX. She asked Mr. Ray to discuss any significant findings surrounding this specific loan.
  • Mr. Ray stated that numerous loans were provided to former FTX CEO Sam Bankman-Fried and noted that some of these loans were documented by individual promissory notes. He indicated however that there were no descriptions regarding the purposes of these loans. He mentioned how Mr. Bankman-Fried had signed as both the issuer and recipient of a loan in one instance. He testified that there was no information at the current time regarding the purpose or use of the funds stemming from the loans. He stated that his investigation was meant to uncover this purpose and use.
• Chairman Waters asked Mr. Ray to indicate whether he had found any business or operational activities that FTX and Alameda Research had jointly engaged in that could be considered inappropriate or detrimental to FTX.
  • Mr. Ray stated that Alameda Research’s operations were dependent on FTX customer funds. He explained that funds from FTX.com (which was the exchange for non-U.S. citizens) had been used at Alameda Research to make investments and other disbursements.
• Chairman Waters asked Mr. Ray to answer whether FTX had maintained sufficient risk management systems and controls to appropriately monitor any leverage that the business had taken on and FTX’s linkages to other businesses (such as Alameda Research).
  • Mr. Ray stated that FTX maintained virtually no internal controls or separations amongst businesses.

Full Committee Ranking Member Patrick McHenry (R-NC):

• Ranking Member McHenry noted how Mr. Ray had categorized FTX’s businesses into four silos. He asked Mr. Ray to describe these four silos.
  • Mr. Ray highlighted how FTX had over 100 affiliated entities and noted how he had categorized these various entities into four silos for presentation purposes. He indicated that the first silo is the U.S. silo. He explained that this silo involves FTX.US, which was FTX’s exchange for U.S. investors. He indicated that the second silo is the international silo. He explained that FTX had maintained FTX.com, which was their international exchange for non-American investors. He indicated that the third silo is Alameda Research. He explained that Alameda Research was a cryptocurrency hedge fund. He indicated that the fourth silo involved FTX’s investments. He speculated that these investments were made with either Alameda Research’s money or money that came from FTX.com
• Ranking Member McHenry asked Mr. Ray to indicate who owned each of these silos.
  • Mr. Ray stated that former FTX CEO Sam Bankman-Fried had owned or controlled all of the entities within the four silos.
• Ranking Member McHenry asked Mr. Ray to explain the differences between the FTX.US and the FTX.com silos.
  • Mr. Ray noted that FTX.US was for U.S. citizens that wanted to trade cryptocurrencies and that U.S. citizens were not able to trade on the FTX.com exchange. He also mentioned how FTX had an exchange that existed outside of these two silos, which was LedgerX. He explained that LedgerX is regulated by the U.S. Commodity Futures Trading Commission (CFTC) and noted how LedgerX is currently solvent.
• Ranking Member McHenry then asked Mr. Ray to explain what Alameda Research did.
  • Mr. Ray stated that Alameda Research made cryptocurrency investments, engaged in margin trading, and took long and short positions in cryptocurrencies. He noted that Alameda Research had also made over $5 billion in investments across various sectors.
• Ranking Member McHenry asked Mr. Ray to discuss the relationship between Alameda Research and FTX.com.
  • Mr. Ray described Alameda Research as a customer of FTX.com.
• Ranking Member McHenry asked Mr. Ray to indicate whether Alameda Research and FTX.com each had their own distinct set of capital.
  • Mr. Ray answered no.
• Ranking Member McHenry then asked Mr. Ray to indicate when FTX had begun to experience financial trouble.
  • Mr. Ray noted that FTX’s financial troubles were first disclosed to the public beginning around November 2, 2022. He stated however that these financial troubles had preceded this public disclosure by either months or years. He remarked that his investigation into FTX’s problems remained ongoing. He emphasized however that FTX’s financial troubles had preceded their public disclosure.
• Ranking Member McHenry then asked Mr. Ray to describe the relationship between FTX.com and FTX.US.
  • Mr. Ray stated that while there existed a public distinction between FTX.com and FTX.US, he noted that the crypto assets for both platforms had been housed in the same database.
• Ranking Member McHenry asked Mr. Ray to indicate whether Alameda Research’s assets had been housed in a distinct database.
  • Mr. Ray answered affirmatively.
• Ranking Member McHenry then noted how Mr. Ray’s testimony had asserted that there had been an absence of independent governance throughout the FTX group. He noted however that former FTX CEO Sam Bankman-Fried had claimed that he was neither running Alameda Research nor making decisions for Alameda Research. He asked Mr. Ray to indicate whether Mr. Bankman-Fried’s claim was accurate.
  • Mr. Ray stated that he did not know the basis for former FTX CEO Sam Bankman-Fried’s claim. He noted however that Mr. Bankman-Fried had owned 90 percent of Alameda Research.
• Ranking Member McHenry asked Mr. Ray to confirm that there had been no distinction in the governance of FTX and Alameda Research.
  • Mr. Ray remarked that there had been no distinction in the governance of FTX and Alameda Research. He stated that FTX’s owners could do whatever they wanted across all four silos of the business.

Rep. Nydia Velázquez (D-NY):

• Rep. Velázquez noted how Mr. Ray had reportedly stated that he had never seen such a complete failure of corporate control and such a level of corporate dysfunction as with FTX. She asked Mr. Ray to expand on these statements and to explain what had caused him to make such statements.
  • Mr. Ray attributed the aforementioned statements to FTX’s utter lack of recordkeeping.
• Rep. Velázquez then noted how many of the debtors in the FTX group are located in offshore jurisdictions. She asked Mr. Ray to indicate whether this dynamic would complicate the efforts to retrieve the assets of debtors.
  • Mr. Ray answered no. He mentioned how he had been involved in several cross-border bankruptcy situations and stated that different jurisdictions tended to cooperate with one another during bankruptcy proceedings in order to protect the victims of these situations.
• Rep. Velázquez asked Mr. Ray to indicate how much of FTX’s assets his team had been able to secure as part of the bankruptcy process and to indicate where most of these assets were located.
  • Mr. Ray testified that his team had been able to secure over $1 billion of FTX’s assets as part of the bankruptcy process and indicated that these assets were being held in cold wallets in a secure location. He stated that this recovery of FTX’s assets remained an ongoing process that would take weeks or months to complete.
• Rep. Velázquez asked Mr. Ray to indicate whether most of FTX’s creditors were located within the U.S. or in foreign locations.
  • Mr. Ray noted that the majority of FTX’s creditors had used FTX.com and were outside of the U.S. He noted however that there were some foreign customers that had used FTX.US and some U.S. customers that had used FTX.com.
• Rep. Velázquez then asked Mr. Ray to explain why he had established four silos for FTX. She asked Mr. Ray to explain how this four silo approach would maximize asset recovery recovery. She also asked Mr. Ray to indicate whether this approach could help to determine what had happened to the missing $1 billion.
  • Mr. Ray stated that the four silo approach enabled his team to first focus on the impacts of the collapse of FTX.US. He noted how FTX.US had smaller trading volume and fewer customers than FTX.com. He highlighted how the FTX.com silo was for non-U.S. users, which provided an easy distinction for his team’s work. He also stated that the Alameda Research silo was fundamentally different from the FTX.US and FTX.com silos in that it involved a hedge fund.
• Rep. Velázquez asked Mr. Ray to identify any lessons learned from his time at FTX that should inform future legislative efforts on cryptocurrency issues.
  • Mr. Ray commented that he was not an expert in cryptocurrency regulation. He stated however that recordkeeping, controls, and segregation of funds were necessary within the context of cryptocurrency holdings.

Full Committee Vice Ranking Member Ann Wagner (R-MO):

• Vice Ranking Member Wagner asked Mr. Ray to elaborate on his assertion that FTX’s collapse was worse than Enron’s collapse.
  • Mr. Ray stated that FTX’s collapse was unusual in that there was a total absence of recordkeeping. He noted how FTX employees had communicated their invoices and expenses using the Slack application. He also noted how FTX had used QuickBooks accounting software, which he called very unusual for a multibillion dollar company. He further highlighted that FTX had no independent board of directors and called this situation “highly unusual” given FTX’s size. He remarked that the fact that FTX’s products and services involved intangible assets had made its collapse even more complex.
• Vice Ranking Member Wagner noted how former FTX CEO Sam Bankman-Fried had apologized for “mistakes.” She asked Mr. Ray to indicate whether the transfer of customer funds from FTX to Alameda Research had been done by mistake.
  • Mr. Ray stated that he did not find the statement that customer funds had been mistakenly transferred from FTX to Alameda Research to be credible.
• Vice Ranking Member Wagner noted how reports suggest that FTX.com had transferred more than half of its customer’s funds (which amounted to roughly $10 billion) to Alameda Research. She asked Mr. Ray to indicate whether these reports were accurate.
  • Mr. Ray testified that his team’s work remained unfinished and commented that he could therefore not provide exact transfer amounts. He stated however that the transfer amount was several billion dollars and called the size of the harm “significant.”
• Vice Ranking Member Wagner noted how FTX.com had claimed to possess a sophisticated risk management system that was commensurate with the size of its operations. She asked Mr. Ray to indicate whether this claim had been accurate and to explain the sophistication of this risk management system.
  • Mr. Ray described FTX.com’s claim that it possessed a sophisticated risk management system as “absolutely false.” He asserted that there was no sophistication in FTX.com’s risk management system.
• Vice Ranking Member Wagner asked Mr. Ray to provide a breakdown of the various business activities of FTX.com.
  • Mr. Ray noted how FTX had two exchanges that allowed for users to trade cryptocurrencies and a hedge fund. He explained that non-U.S. citizens had a more expansive ability to trade cryptocurrencies using FTX.com. He also noted how there did exist regulated entities within the FTX.US silo and the FTX.com silo. He mentioned how FTX has a regulated entity in Japan that is solvent and how LedgerX is an FTX-affiliated U.S. regulated entity that is also solvent. He stated that these regulated entities were distinct from the aforementioned exchanges.
• Vice Ranking Member Wagner submitted an op-ed for the hearing’s record that described an existing SEC rule that could have been employed to prevent the misuse of customer assets.

Rep. Brad Sherman (D-CA):

• Rep. Sherman mentioned how he had worked to ban U.S. investments in cryptocurrencies for five years. He expressed concerns that the Committee would view former FTX CEO Sam Bankman-Fried as an anomalous character. He asserted that the cryptocurrency space was inherently dangerous and stated that cryptocurrencies had no inherent value. He remarked that the goal of cryptocurrencies was to eventually become widely used currencies that would compete with the U.S. dollar. He stated that the secretive nature of cryptocurrencies facilitated a variety of illicit activities, including drug dealing, human trafficking, and sanctions evasions. He asserted that the biggest market for cryptocurrencies was among tax evaders. He also discussed how cryptocurrencies sought to challenge the U.S. dollar’s current position as the world’s reserve currency. He asserted that the dethroning of the U.S. dollar’s world reserve currency status would enrich already wealthy individuals at the expense of American families. He then remarked that former FTX CEO Sam Bankman-Fried’s main policy goals were to keep the SEC from regulating the cryptocurrency space and to have the CFTC provide a “patina” of regulation. He raised concerns that the Committee would criticize Mr. Bankman-Fried and then advance his policy agenda. He criticized the cryptocurrency industry for their outsized political influence and stated that this influence could harm the U.S.’s ability to efficiently enforce its tax code and sanctions regime. He then submitted a previous letter from 19 Republican Committee Members that had criticized the SEC for focusing on the “purported” risks of digital assets. He also stated that several Committee Republicans had accused the SEC of being “anti-innovation” for its aggressive scrutiny of certain cryptocurrency firms. He then asked Mr. Ray to indicate whether his team would turn over its investigation’s findings about other top FTX executives, including Ryan Salame and Caroline Ellison, to U.S. law enforcement authorities.
  • Mr. Ray remarked that his team was conducting a thorough investigation into FTX’s collapse and was cooperating with U.S. regulators and law enforcement agencies. He stated that his team would turn over any relevant information found in this investigation to U.S. regulators and law enforcement agencies.
• Rep. Sherman then noted how former FTX CEO Sam Bankman-Fried had been indicted for violating U.S. campaign finance laws. He expressed hope that Mr. Ray’s team would turnover information about FTX’s bonuses and loans. He suggested that these bonuses and loans might have been used to facilitate illegal campaign contributions. He asked Mr. Ray to indicate whether his team would be able to turnover this information.
  • Mr. Ray answered affirmatively.

Rep. Frank Lucas (R-OK):

• Rep. Lucas noted how some FTX-affiliated entities (such as LedgerX) were not included in FTX’s bankruptcy process. He asked Mr. Ray to explain why these entities were not included in FTX’s bankruptcy process and to indicate what would ultimately happen with these entities.
  • Mr. Ray noted how LedgerX had been kept out of FTX’s bankruptcy filing. He indicated that LedgerX is a fully solvent regulated entity and noted that it has segregated its customer funds. He stated that LedgerX customers had not been harmed and that there was no reason to put LedgerX into bankruptcy. He remarked that LedgerX will ultimately be sold.
• Rep. Lucas asked Mr. Ray to discuss how U.S. bankruptcy proceedings interact with international proceedings.
  • Mr. Ray remarked that the U.S. bankruptcy system was designed to have a cooperative relationship with liquidators in other jurisdictions. He stated that the U.S. worked with other jurisdictions to share information and facilitate distributions to creditors.
• Rep. Lucas then mentioned how the SEC, the CFTC, and the U.S. Department of Justice (DoJ) had brought charges against former FTX CEO Sam Bankman-Fried. He noted how Mr. Ray’s testimony had described FTX as maintaining “unacceptable” management practices. He mentioned how the SEC had alleged that Mr. Bankman-Fried had directed FTX customers to deposit cash in Alameda Research-controlled bank accounts. He asked Mr. Ray to explain how FTX had been able to conceal this tactic.
  • Mr. Ray stated that FTX customer funds were deposited directly into Alameda Research (as opposed to FTX’s bank accounts). He called this situation unfortunate.
• Rep. Lucas noted that FTX Digital Markets and FTX Australia had not been included in FTX’s bankruptcy filing because local regulators had initiated their own proceedings for these entities. He asked Mr. Ray to confirm that these entities could not be included in FTX’s bankruptcy filing.
  • Mr. Ray answered affirmatively. He noted how FTX had filed for bankruptcy protection on November 11, 2022 and indicated that these other entities had made their own filings before this date.
• Rep. Lucas asked Mr. Ray to compare FTX’s collapse to the other bankruptcies that he had managed during his professional career.
  • Mr. Ray remarked that FTX’s collapse was one of the worst bankruptcies he had managed from a documentation standpoint. He noted that companies tended to have documentation that described what had gone wrong and stated that FTX lacked such documentation. He commented that this lack of documentation had made it difficult to track and trace assets.

Rep. Al Green (D-TX):

• Rep. Green noted how the DoJ had filed several criminal charges against former FTX CEO Sam Bankman-Fried, including wire fraud on customers, conspiracy to commit wire fraud on lenders, conspiracy to commit commodities fraud, conspiracy to commit securities fraud, and conspiracy to commit money laundering. He noted how Mr. Bankman-Fried had claimed that he had merely made business mistakes and had not intentionally broken the law. He asked Mr. Ray to assess whether Mr. Bankman-Fried had simply made mistakes in his management of FTX. He commented that Mr. Bankman-Fried appeared to have engaged in some malfeasance during his tenure running FTX.
  • Mr. Ray stated that his team’s investigation remained in the early stages. He expressed his desire to refrain from passing judgement on former FTX CEO Sam Bankman-Fried’s actions at the current time. He remarked that his team was currently focused on accumulating and maximizing assets for the victims of FTX’s collapse. He stated that his team would investigate potential courses of action to maximize value for these victims, which would entail an investigation into the underlying facts and motivations surrounding FTX’s collapse.
• Rep. Green asked Mr. Ray to indicate whether former FTX CEO Sam Bankman-Fried’s denials that he had intentionally broken the law should be considered “sincere ignorance.”
  • Mr. Ray remarked that he did not want to pass judgment on former FTX CEO Sam Bankman-Fried’s intention at the current time. He stated that FTX had a significant failure and that other parties would judge Mr. Bankman-Fried’s actions.
• Rep. Green stated that former FTX CEO Sam Bankman-Fried had likely been intentional in committing his illegal actions. He remarked that the U.S. must aggressively pursue Mr. Bankman-Fried to deter other bad actors.

Rep. Pete Sessions (R-TX):

• Rep. Sessions asked Mr. Ray to indicate what the largest amount of money held by a single investor at FTX was.
  • Mr. Ray stated that he could not provide individual numbers at this point. He mentioned how hundreds of millions of dollars had been held at FTX.US and how billions of dollars had been held at FTX.com. He noted how there existed millions of FTX accounts and commented that multiple users could hold many of these accounts. He stated that his team was currently assessing the relationships between individual customers and FTX accounts.
• Rep. Sessions asked Mr. Ray to indicate whether the SEC had looked into the exposure of U.S. customer funds to FTX.
  • Mr. Ray testified that he was not aware of any SEC investigations into this exposure. He emphasized that he had joined FTX as its CEO on November 11, 2022 and suggested that an SEC investigation could have been possible prior to him joining the company.
• Rep. Sessions asked Mr. Ray to indicate whether FTX had taken actions to avoid its current issues with the SEC.
  • Mr. Ray stated that he was not privy to FTX’s actions from before the company’s bankruptcy filing.
• Rep. Sessions asked Mr. Ray to indicate the value of the assets that were lent by FTX and Alameda Research to former FTX CEO Sam Bankman-Fried.
  • Mr. Ray indicated that the size of the loss associated with FTX’s collapse was several billion dollars. He noted however that asset values tend to fluctuate, which makes it difficult to determine the true value of the assets that were lent by FTX and Almeda Research to former FTX CEO Sam Bankman-Fried. He stated that his team would assess the loss information, FTX’s loans, and FTX’s investments to determine the value of the assets that had been lent by FTX and Alameda Research to Mr. Bankman-Fried.
• Rep. Sessions asked Mr. Ray to indicate whether FTX had properly filled its taxes with the IRS.
  • Mr. Ray stated that his team was currently looking into FTX’s compliance with U.S. tax laws. He mentioned how his team had hired Ernst & Young to review FTX’s tax returns and indicated that this review is ongoing.
• Rep. Sessions asked Mr. Ray to indicate whether the SEC should have access to FTX’s IRS filings to determine whether FTX was following the law.
  • Mr. Ray stated that his team would provide FTX’s IRS filings to the regulatory agencies investigating FTX.
• Rep. Sessions asked Mr. Ray to indicate whether FTX’s IRS filings would be pertinent for the Committee as it worked to assess whether FTX had received proper oversight from federal regulators.
  • Mr. Ray expressed his interest in being cooperative with the Committee and stated that his team could work with the Committee staff to address the Committee’s needs.

Rep. Emanuel Cleaver (D-MO):

• Rep. Cleaver asked Mr. Ray to indicate whether he had read former FTX CEO Sam Bankman-Fried’s prepared testimony for the hearing.
  • Mr. Ray answered no. He indicated that parts of the testimony had been relayed to him.
• Rep. Cleaver called former FTX CEO Sam Bankman-Fried’s prepared testimony for the hearing disrespectful and criticized the testimony for its use of obscene language. He then noted how exchanges were required to provide both customers and the IRS with IRS Form 1099-B. He asked Mr. Ray to indicate whether exchanges were subject to additional IRS requirements.
  • Mr. Ray stated that he would need to defer to tax experts on this question. He expressed confidence that tax experts would conduct a thorough review of what FTX should have submitted to the IRS.
• Rep. Cleaver then asked Mr. Ray to provide updates on the extent of FTX’s poor controls that had previously been identified in the November 17, 2022 bankruptcy declaration.
  • Mr. Ray remarked that the list of FTX’s poor controls was extensive and that these poor controls were pervasive throughout the entire company. He indicated that these poor controls included a lack of a list of bank accounts, a lack of a complete list of employees and their functions, an extensive use of independent contractors (as opposed to employees), and gaps and total absences of insurance. He highlighted how Alameda Research had no insurance whatsoever. He also stated that there were additional poor controls at FTX beyond those that he had just mentioned.
• Rep. Cleaver suggested that the name “cryptocurrency” ought to be changed to “creepy dough currency.”

Rep. Blaine Luetkemeyer (R-MO):

• Rep. Luetkemeyer noted how FTX had reportedly used Alameda Research’s bank account because FTX could not obtain one for itself. He asked Mr. Ray to indicate whether FTX’s inability to obtain a bank account should have been a cause for concern.
  • Mr. Ray stated that FTX’s requests of customers to deposit funds into Alameda Research’s bank account should have been a “red flag” for customers.
• Rep. Luetkemeyer asked Mr. Ray to indicate whether Alameda Research’s bank was a U.S. chartered bank or was an offshore bank.
  • Mr. Ray indicated that Alameda Research had bank accounts in the U.S.
• Rep. Luetkemeyer noted how cryptocurrency firms need to be able to exchange their digital assets into U.S. dollars. He highlighted how FTX had relied upon Alameda Research to provide this function.
  • Mr. Ray noted that FTX’s various silos had bank accounts. He stated that the main issue with FTX had been the internal transfers across the bank accounts of FTX’s affiliated entities without limits.
• Rep. Luetkemeyer remarked that the unusual accounting systems among cryptocurrency firms should be concerning for policymakers within the financial services space. He stated that these accounting issues prevent the U.S. from monitoring Chinese investments within the cryptocurrency space. He then recounted how Alameda Research had made an investment in Farmington State Bank, which was the U.S.’s 26th smallest bank. He noted how Alameda Research had paid $11.5 million for about 10 percent ownership of the bank in 2020. He indicated that the bank had a net worth of $5.7 million and called Alameda Research’s valuation of this bank “off the charts outrageous.” He highlighted that the U.S. Federal Deposit Insurance Corporation (FDIC) had permitted this investment. He also noted that Farmington State Bank had subsequently changed its name to Moonstone Bank. He asked Mr. Ray to address whether he had looked into the relationship between Alameda Research and Moonstone Bank.
  • Mr. Ray testified that his team was looking into the relationship between Alameda Research and Moonstone Bank. He specifically stated that his team was looking into the amount of money transferred from FTX into Moonstone Bank and the connection of that bank to the Bahamas.
• Rep. Luetkemeyer asked Mr. Ray to indicate whether it was common for FTX to overpay for businesses. He also asked Mr. Ray to indicate whether FTX had purchased a stake in a bank to facilitate money laundering activities.
  • Mr. Ray stated that FTX’s acquisition of Farmington State Bank raised questions and called this transaction “highly irregular.”
• Rep. Luetkemeyer called FTX’s lack of accounting, heavy spending, and heavy use of internal funds transfers concerning. He also raised concerns that FTX might have used offshore bank accounts to conceal their funds.

Rep. Ed Perlmutter (D-CO):

• Rep. Perlmutter predicted that it would take a very long time to make sense of FTX’s situation. He mentioned how several cryptocurrency firms (including FTX) had begun to experience financial problems starting 12 months ago and indicated that these firms had engaged in numerous transactions amongst one another to conceal their financial situations. He noted that Mr. Ray’s job was to gather as many of FTX’s assets as possible and to then distribute these assets to FTX’s creditors. He highlighted how some of these assets would be taken from innocent people that FTX had paid and commented that it would be difficult for Mr. Ray’s team to discern how much money it should claw back in these instances. He asked Mr. Ray to indicate whether his team had an estimate regarding FTX’s total inflows and outflows.
  • Mr. Ray testified that his team did not have a full accounting of FTX’s total inflows and outflows at the current time.
• Rep. Perlmutter asked Mr. Ray to indicate how much of FTX’s holdings were in tokens. He noted how the value of cryptocurrencies tends to fluctuate. He asked Mr. Ray to address how his team would consider the fluctuating nature of cryptocurrency values when making its distribution determinations.
  • Mr. Ray stated that his team would first need to account for all of FTX’s inflows and outflows and commented that FTX’s commingling of assets would complicate this process. He indicated that his team would assess FTX customer accounts based on the date of FTX’s bankruptcy filing. He stated that the fluctuations in asset values, FTX’s lack of documentation, the comingling of FTX’s customer funds across silos, and the transfers of funds from FTX.com to Alameda Research made it difficult to assess the value of a given FTX customer account.

Rep. Bill Huizenga (R-MI):

• Rep. Huizenga first asked Mr. Ray to indicate whether his team had shared its findings about FTX with the SEC and the U.S. Attorney’s Office for the Southern District of New York.
  • Mr. Ray answered affirmatively.
• Rep. Huizenga then noted how Mr. Ray had stated that the FTX.com platform had not been available to U.S. users. He noted however that CFTC Chairman Rostin Behnam had told the U.S. Senate Committee on Agriculture, Nutrition, and Forestry that 2 percent of funds housed at FTX.com were from U.S. individuals. He asked Mr. Ray to confirm whether FTX.com had U.S. customers.
  • Mr. Ray stated that there was a “small number” of Americans that had been customers of FTX.com.
• Rep. Huizenga asked Mr. Ray to confirm the veracity of the 2 percent figure previously offered by CFTC Chairman Rostin Behnam.
  • Mr. Ray stated that his team’s information was based on the total number of customers (rather than the value of the investments of these customers). He indicated that the number of U.S. customers of FTX.com was “less than a couple hundred.”
• Rep. Huizenga commented that the value of the U.S. customer losses from FTX.com’s collapse could be as much as billions of dollars.
  • Mr. Ray stated that he did not know the precise amount of money that U.S. customers had lost from FTX.com’s collapse. He commented however that the amount was likely not billions of dollars.
• Rep. Huizenga asked Mr. Ray to indicate whether his team would work to determine the amount of money that U.S. customers had lost from FTX.com’s collapse.
  • Mr. Ray answered affirmatively.
• Rep. Huizenga asked Mr. Ray to indicate whether his team would work to determine which assets belong to U.S. customers of FTX.com.
  • Mr. Ray answered affirmatively. He stated that his team would conduct a tracing analysis to determine the sources and uses of all of FTX’s funds.
• Rep. Huizenga asked Mr. Ray to indicate whether customer funds held on FTX.com had been transferred to Alameda Research.
  • Mr. Ray answered affirmatively. He testified that his team had not yet observed any instances of customer funds held at FTX.US being transferred to Alameda Research. He stated however that his team was still working to determine whether there had occurred a comingling of funds held at FTX.com and funds held at FTX.US. He noted that FTX senior management could access and control all of the funds held on FTX’s various platforms. He indicated that there was no evidence thus far that such comingling of funds had occurred between FTX.US and FTX.com.
• Rep. Huizenga then asked Mr. Ray to indicate whether there was any evidence that former FTX CEO Sam Bankman-Fried’s parents had been involved in FTX’s operations.
  • Mr. Ray stated that his team was investigating this question. He noted that Mr. Bankman-Fried’s father Joseph Bankman had provided legal advice to FTX.
• Rep. Huizenga asked Mr. Ray to indicate whether Joseph Bankman had been an employee of FTX.
  • Mr. Ray stated that while he was unsure whether Joseph Bankman was an official employee of FTX, he indicated that Joseph Bankman had received payments from FTX.
• Rep. Huizenga recounted how he had met with former FTX CEO Sam Bankman-Fried in his office on December 8, 2021. He noted that Joseph Bankman had accompanied Sam Bankman-Fried to this meeting. He lastly stated that he was glad to see FTX’s fraud finally unravel.

Rep. Joyce Beatty (D-OH):

• Rep. Beatty noted how Mr. Ray had expressed his desire to limit the harms suffered by FTX customers to the greatest extent possible. She highlighted how hundreds of millions of dollars had been removed from cryptocurrency wallets as a result of FTX’s collapse and indicated that an estimated one million people had their funds frozen in FTX’s exchanges. She asked Mr. Ray to indicate how many users had lost money on FTX’s platforms and to indicate when these users would recover this money.
  • Mr. Ray stated that his team was working every day to secure assets through looking for cryptocurrency wallets and their keys. He testified that his team had secured all of the cash in FTX’s bank accounts to the greatest extent possible. He predicted that it would take months to secure all of the crypto assets associated with FTX. He stated however that the litigation associated with FTX’s assets would take a long time to resolve. He remarked that his team’s top priority was to generate value to repay FTX’s customers. He then indicated that he did not know how many customers had lost money on FTX’s platforms. He noted that FTX.US had 2.7 million users. He acknowledged however that this user amount overstates the total number of customers because several customers had multiple accounts on FTX.US. He also noted that FTX.com had over 7.6 million users. He commented that the aforementioned dynamic of customers having multiple accounts was also present in FTX.com. He stated that his team was working to determine how many customers there were across FTX’s various platforms.
• Rep. Beatty then noted how FTX had loaned out $10 billion in customer assets to Alameda Research for proprietary trading, despite making assurances that it would not trade customer funds. She asked Mr. Ray to address how FTX had been able to access client funds in violation of its own terms of service.
  • Mr. Ray noted how FTX had lacked corporate controls, corporate oversight, and an independent board of directors. He also noted how FTX’s senior management had total control over the accounts of each of the company’s silos and could therefore move money and assets across silos at will.
• Rep. Beatty then asked Mr. Ray to recommend regulatory changes for preventing unauthorized transfers of customer funds at financial exchanges.
  • Mr. Ray stated that segregation of customer funds and transparency were key for financial exchanges.
• Rep. Beatty lastly asked Mr. Ray to indicate whether he could provide a timeframe for meeting his objectives.
  • Mr. Ray indicated that he did not have a timeframe for meeting his objectives and would work to meet the objectives as quickly as possible. He clarified that it would likely take months to achieve his objectives and stated that action could take even longer. He expressed his team’s commitment to marshaling assets as quickly as possible to meet its objectives.

Rep. Andy Barr (R-KY):

• Rep. Barr noted how Mr. Ray had asserted that many of FTX’s affiliated entities lacked appropriate corporate governance. He also noted how Mr. Ray had attributed FTX’s collapse to the company’s lack of an independent board of directors and its complete failure of any internal controls and governance. He asked Mr. Ray to elaborate on how FTX.com’s governance structure issues had led him to reach the aforementioned conclusions.
  • Mr. Ray noted how FTX had lacked an independent board of directors and testified that one of his first actions as CEO of FTX was establishing an independent board of directors. He also highlighted how he had put in new officers at the company, including a chief financial officer (CFO), a chief information officer (CIO), and a head of administration. He indicated that these officers were all independent and had relevant professional experience. He stated that FTX’s previous management lacked sufficient professional experience.
• Rep. Barr asked Mr. Ray to explain how FTX.com’s governance structure had differed from FTX.US’s governance structure.
  • Mr. Ray remarked that there was “virtually no difference” between the governance structures of FTX.com and FTX.US. He commented that neither entity had a governance structure.
• Rep. Barr asked Mr. Ray to indicate whether he had examined the governance structure or flow of assets to the FTX Foundation or its various affiliates, including FTX Community, FTX Climate, or the Future Fund.
  • Mr. Ray stated that his team was looking into the FTX Foundation and its various affiliates. He indicated that his team had not completed its review regarding these affiliates.
• Rep. Barr expressed interest in learning whether the FTX Foundation and its various affiliates had been established properly as non-profit organizations or whether customer funds had been improperly transferred into these groups. He asked Mr. Ray to indicate whether his team currently had any visibility into the FTX Foundation and its affiliates.
  • Mr. Ray reiterated that his team was currently looking into the FTX Foundation and its various affiliates. He testified that he had requested that Ernst & Young look into the tax compliance of these groups. He also testified that his team was investigating FTX’s various money transfers.
• Rep. Barr asked Mr. Ray to indicate whether the FTX Foundation and its various affiliates were completely separate from FTX’s for-profit entities.
  • Mr. Ray stated that former FTX CEO Sam Bankman-Fried had owned the FTX Foundation and its various affiliates. He also noted how these groups had received funds from Alameda Research, which meant that the groups were not entirely separate from FTX’s for-profit entities.
• Rep. Barr then mentioned how at least one environmental, social, and governance (ESG) ratings firm had given FTX a higher score for governance than ExxonMobil. He noted that Mr. Ray had attributed FTX’s collapse to the concentration of control amongst a small number of inexperienced and unsophisticated individuals that had failed to implement proper corporate controls. He asked Mr. Ray to comment on the aforementioned ESG ratings firm’s score of FTX.
  • Mr. Ray criticized the ESG ratings firm that had provided FTX with a higher corporate governance score than ExxonMobil.
• Rep. Barr then asked Mr. Ray to identify which FTX entities had audited financial statements.
  • Mr. Ray noted how Alamada Research and FTX’s investment silo had received no audits while FTX.US and FTX.com had received audits. He stated that he could not speak to the integrity or quality of these audits. He indicated that his team was currently reviewing the books and records of these entities and commented that many of these books and records were maintained on unsophisticated ledgers and workbooks.
• Rep. Barr asked Mr. Ray to confirm that FTX had many financial statements that were not audited or not available.
  • Mr. Ray confirmed that FTX had many financial statements that were not audited or not available.
• Rep. Barr asked Mr. Ray to elaborate on his assertion that many of FTX’s audited financial statements did not appear reliable.
  • Mr. Ray noted how FTX had lost $8 billion of customer funds and commented that this loss of customer funds had made him distrustful of FTX’s statements.
• Rep. Barr then noted how former FTX CEO Sam Bankman-Fried had told the Committee in December 2021 that the market structure on FTX’s platform was risk reducing. He asked Mr. Ray to indicate wither Mr. Bankman-Fried’s statement was incorrect.
  • Mr. Ray answered affirmatively.
• Rep. Barr stated that former FTX CEO Sam Bankman-Fried had set up a cryptocurrency exchange where his company served as the market maker, issuer, and prime broker and then traded against his exchange’s own customers. He commented that this dynamic left Mr. Bankman-Fried with a vested interest in creating crypto assets, promoting crypto assets, and manipulating the price of the crypto assets.

Rep. Juan Vargas (D-CA):

• Rep. Vargas remarked that he did not understand the purpose of blockchain technology and cryptocurrencies and commented that there exist less fraudulent means for making transactions. He stated that Committee Republicans had previously been very supportive of the cryptocurrency industry and accused them of muting their support for cryptocurrencies during the hearing. He remarked that the cryptocurrency market required order and transparency and asserted that cryptocurrency exchanges and issuers ought to come into compliance with federal and state securities laws. He asserted that citizens would need to be informed, regulators would need to uphold the laws, and companies would need to comply with the laws for the U.S. cryptocurrency industry to continue. He asked Mr. Ray to address why FTX had failed to comply with existing laws.
  • Mr. Ray stated that a small group of individuals had exerted total control over FTX without any oversight from either an independent board of directors or experienced managers. He called this situation a “recipe for problems.”
• Rep. Vargas asked Mr. Ray to identify the government entity that was responsible for FTX’s collapse.
  • Mr. Ray stated that he was not a regulatory lawyer and that he did not feel comfortable providing recommendations as to which government entity should regulate cryptocurrencies. He remarked that the U.S. needed to provide transparency for cryptocurrencies and that customers need segregated accounts and ownership over their assets. He commented that customers should have the same level of protection for their funds held on a cryptocurrency exchange as they would have for their funds in a traditional bank.
• Rep. Vargas stated that he agreed with Mr. Ray’s response. He also stated that cryptocurrencies constitute hybrid products. He asked Mr. Ray to indicate which government entity should regulate cryptocurrencies.
  • Mr. Ray stated that he did not have an opinion as to which government entity should regulate cryptocurrencies.
• Rep. Vargas remarked that cryptocurrencies only made sense for bad actors (such as terrorists and money launderers) and do not provide legitimate uses. He stated however that the U.S. would need to regulate cryptocurrencies if it were to permit their existence. He contended that the SEC should oversee cryptocurrencies. He asked Mr. Ray to indicate whether cryptocurrencies ought to be regulated.
  • Mr. Ray remarked that there needed to exist more controls within the cryptocurrency space. He stated that he would defer to the Committee regarding which government entity ought to regulate cryptocurrencies.

Rep. Roger Williams (R-TX):

• Rep. Williams commented that FTX will likely be considered one of the greatest financial frauds in history. He noted how Mr. Ray had worked on Enron’s bankruptcy and asked Mr. Ray to compare Enron’s bankruptcy to FTX’s collapse.
  • Mr. Ray remarked that Enron was a very different company than FTX. He stated that the crimes committed at Enron involved highly orchestrated machinations from highly sophisticated people to keep transactions off of balance sheets. He stated that the crimes committed at FTX involved the embezzlement of customer funds. He commented that FTX’s crimes were not sophisticated.
• Rep. Williams then noted how former FTX CEO Sam Bankman-Fried reportedly wants to be retained by FTX as an outside consultant and has criticized Mr. Ray’s appointment as CEO of FTX. He commented that Mr. Bankman-Fried’s desire to be retained by FTX appeared very unlikely considering his recent arrest. He asked Mr. Ray to address the role that Mr. Bankman-Fried should play in FTX moving forward.
  • Mr. Ray stated that former FTX CEO Sam Bankman-Fried should play no role in FTX moving forward.
• Rep. Williams then asked Mr. Ray to indicate whether FTX had enabled its users to engage in leveraged and complex transactions involving digital assets.
  • Mr. Ray answered affirmatively.
• Rep. Williams also noted how Mr. Ray had stated that his team had recovered over $1 billion relating to FTX’s collapse. He asked Mr. Ray to provide a description of the nature and the type of assets that his team had recovered to date.
  • Mr. Ray testified that his team had recovered over $1 billion in crypto assets and indicated that these were coins of various natures. He also stated that his team had secured FTX’s bank accounts. He remarked that his team’s main goal was to secure FTX’s cash and crypto assets and commented that this effort was ongoing.

Del. Michael San Nicolas (D-GU):

• Del. San Nicolas asked Mr. Ray to indicate whether he could pinpoint the specific cause for FTX’s collapse.
  • Mr. Ray attributed FTX’s collapse to the unlimited ability of the company’s management to take customer funds and deploy the funds for their own use. He indicated that the use of these funds included margin trading, which he commented was inherently risky.
• Del. San Nicolas asked Mr. Ray to indicate how much money had FTX lost as a result of its bankruptcy.
  • Mr. Ray stated that while he could not provide an exact figure for FTX’s losses, he estimated that the losses were in excess of $7 billion.
• Del. San Nicolas asked Mr. Ray to indicate whether FTX’s misallocation of funds was responsible for FTX’s collapse.
  • Mr. Ray noted how FTX had moved customer funds to Alameda Research and that Alameda Research had then incurred trading losses with these funds. He commented that these lost funds would never be valued at the same dollar amount. He also mentioned how FTX had made over $5 billion in investments in various ventures. He stated that his team would work to recover any remaining value from these investments. He noted however that FTX had made many investments without proper valuations, which he called concerning.
• Del. San Nicolas asked Mr. Ray to confirm that Alameda Research had lost $7 billion as a result of investment decisions and margin trading.
  • Mr. Ray remarked that there were a multitude of reasons for the loss of customer funds at FTX. He stated that these losses were not solely attributable to trading activities.
• Del. San Nicolas remarked that it was important to understand the causes of FTX’s collapse so that Congress could develop a policy response that would prevent future collapses. He noted that FTX’s problems appeared to be confined to FTX. He asked Mr. Ray to indicate whether other firms also lacked corporate controls. He also asked Mr. Ray to indicate whether similar financial problems could occur at other cryptocurrency exchanges (such as Binance).
  • Mr. Ray stated that his team would detail the sources and uses of FTX’s funds and that this process would uncover how FTX’s losses had been incurred. He commented that this exercise might uncover broader lessons or identify instances of improper payments.
• Del. San Nicolas interjected to ask Mr. Ray to indicate whether the circumstances that had caused FTX’s collapse were still present in the cryptocurrency space.
  • Mr. Ray noted that FTX had ceased trading on its platforms. He stated that he could not speak to the likelihood of other cryptocurrency firms facing similar challenges because he was not privy to the operations of other cryptocurrency firms. He stated that FTX had operated in a distinct manner that had caused losses and commented that every company is different.

Rep. French Hill (R-AR):

• Rep. Hill first remarked that frauds had occurred throughout the financial services sector’s history and stated that FTX’s collapse did not mean that digital assets should be avoided. He called for the U.S. to develop a thoughtful regulatory oversight system for digital assets. He then remarked that FTX’s fraud appeared to dwarf Bernie Madoff’s fraud and noted how court filings have suggested that FTX has over one million creditors. He stated that this hearing would constitute the “first step” for Congress to understand what happened with FTX and support efforts to develop an appropriate regulatory environment for the cryptocurrency space. He then noted how Prager Metis had served as the audit firm for the FTX.com silo according to FTX’s bankruptcy filing. He mentioned how Prager Metis’s website had claimed that it was the first ever certified public accountant (CPA) firm in the metaverse. He indicated that Prager Metis’s website also states that the firm has 24 offices, 600 staff, and 100 partners. He asked Mr. Ray to confirm that he was unfamiliar with Prager Metis.
  • Mr. Ray answered affirmatively.
• Rep. Hill asked Mr. Ray to indicate whether Prager Metis was cooperating with his team’s bankruptcy investigation.
  • Mr. Ray stated that all of the firms that were working with FTX appeared to be cooperative thus far. He added that his team had tools to address firms that were uncooperative.
• Rep. Hill asked Mr. Ray to indicate whether Prager Metis would actively participate in his team’s forensic accounting work into FTX with Ernst & Young.
  • Mr. Ray answered no. He stated that his team was collecting information from FTX’s prior accountants, auditors, and tax professionals and then would independently review this information.
• Rep. Hill asked Mr. Ray to identify who had been the partner in charge of FTX’s audit at Prager Metis.
  • Mr. Ray stated that he could not recall who had been the partner in charge of FTX’s audit at Prager Metis and indicated that he could follow with the Committee on this inquiry.
• Rep. Hill also noted how FTX’s second auditing firm had been Armanino. He asked Mr. Ray to indicate whether Armanino had been inadequate in its auditing of FTX.
  • Mr. Ray stated that he did not want to disparage Armanino and indicated that his team would need to first assess the quality of Armanino’s audits of FTX. He also indicated that his team would review the related party disclosures in Armanino’s audits of FTX. He stated that these audits would be key for identifying missed opportunities for actions.
• Rep. Hill asked Mr. Ray to indicate whether he anticipated the U.S. being a creditor in FTX’s bankruptcy proceedings.
  • Mr. Ray stated that it was premature to tell whether the U.S. would be a creditor in FTX’s bankruptcy proceedings. He remarked that his team would notify the IRS of any irregularities in FTX’s tax information.
• Rep. Hill noted how Mr. Ray had called FTX’s internal controls the weakest that he had observed during his professional career. He asked Mr. Ray to confirm that there did not exist a real difference between FTX.US and FTX.com.
  • Mr. Ray noted how FTX.com had a limited number of customers. He stated that his team was concerned that FTX.US and FTX.com might have commingled customer funds.
• Note: Rep. Hill’s question period time expired here.

Rep. Jim Himes (D-CT):

• Rep. Himes stated that cryptocurrencies and digital assets were growing in popularity and called it incumbent on policymakers to educate themselves about these assets. He remarked that FTX’s fraudulent activities were not novel and involved traditional criminal methods, such as wire fraud, misleading investors, and the comingling of customer funds. He stated however that FTX’s fraud was novel in that it involved tokens (rather than money) that resided in wallets (rather than banks). He asked Mr. Ray to address whether these tokens and wallets would make his job resolving the FTX bankruptcy more difficult. He also asked Mr. Ray to provide policy suggestions for addressing the unique needs of cryptocurrency firm-related bankruptcies.
  • Mr. Ray stated that cryptocurrencies were different from the items found in traditional bankruptcies, which made cryptocurrency firm-related bankruptcies more difficult to resolve. He noted how cryptocurrencies stored in hot wallets were vulnerable to hacking and commented that hacking was common within the cryptocurrency space. He also mentioned how FTX’s cryptocurrency keys were not stored in a centralized location and the whereabouts of many of FTX’s cryptocurrency wallets remained unknown. He further testified that FTX had kept some passwords in a plain text format. He asserted that the aforementioned issues had made FTX “uniquely positioned” to fail. He criticized FTX for its lack of discipline in controlling its wallets, cryptocurrency storage practices, password storage practices, and its enabling of users to set up multiple accounts. He stated that FTX’s mistakes provide lessons on the need for cryptocurrency firms to possess more controls, more discipline, more centralized accounting functions, and more oversight and management.
• Rep. Himes then mentioned how many of the “supposedly” most sophisticated investors (including Sequoia Capital, Lightspeed Venture Partners, and Greylock Partners) had put money into FTX. He called this concerning given how much of this money had come from pension funds and university endowments. He noted how Mr. Ray had asserted that FTX had exhibited the worst corporate governance he had ever seen. He asked Mr. Ray to indicate whether he had seen any evidence that the aforementioned venture capital firms had performed appreciable due diligence on FTX.
  • Mr. Ray stated that he was not aware of how venture capital firms had performed their due diligence on FTX. He called the involvement of these venture capital firms in FTX “surprising.”

Rep. Tom Emmer (R-MN):

• Rep. Emmer noted how FTX had over 100 affiliated corporate entities and indicated that some of these entities had boards of directors. He asked Mr. Ray to indicate whether there had been a group-level board of directors that had overseen the entirety of FTX.
  • Mr. Ray answered no.
• Rep. Emmer asked Mr. Ray to indicate whether FTX should have had a group-level board of directors given the organization’s level of complexity.
  • Mr. Ray answered affirmatively.
• Rep. Emmer asked Mr. Ray to indicate whether the concentration of power at FTX amongst a small group of inexperienced individuals with no oversight was concerning.
  • Mr. Ray answered affirmatively.
• Rep. Emmer asked Mr. Ray to indicate whether FTX.com had possessed basic corporate functions, such as an accounting or human resources department.
  • Mr. Ray answered no.
• Rep. Emmer asked Mr. Ray to indicate whether FTX.com had possessed a legal department.
  • Mr. Ray answered affirmatively.
• Rep. Emmer asked Mr. Ray to indicate whether FTX.com had possessed a compliance department.
  • Mr. Ray stated that FTX.com had people with titles that suggested that they were providing compliance services.
• Rep. Emmer asked Mr. Ray to indicate whether a financial firm that was the size of FTX needs accounting, human resources, legal, compliance, and risk departments to protect against problems.
  • Mr. Ray answered affirmatively.
• Rep. Emmer then mentioned how FTX and IEX had announced a strategic partnership in April 2022. He noted however that the Financial Times had recently reported that Alameda Research’s venture capital portfolio had listed FTX Trading’s $270 million investment into IEX as an acquisition. He asked Mr. Ray to indicate whether FTX Trading had acquired IEX. He also asked Mr. Ray to clarify the nature of FTX Trading’s investment into IEX.
  • Mr. Ray stated that he would need to follow up with the Committee regarding Rep. Emmer’s inquiry. He expressed uncertainty as to whether FTX Trading’s investment in IEX had been completed.
• Rep. Emmer then noted how SEC Chairman Gary Gensler had held more meetings with FTX than any other cryptocurrency industry stakeholder. He discussed how FTX had sought to negotiate a framework for digital asset exchange registration and token registration with the SEC. He stated that FTX’s desired framework had sought to expand the SEC’s jurisdiction in exchange for the SEC’s preferential treatment of FTX over other industry participants. He remarked that the SEC was reportedly working to move forward on this framework and had circulated draft short-form disclosures that would enable filers to get tokens listed on exchanges. He commented that SEC Chairman Gensler had refused to answer the Committee’s questions and testify before the Committee. He asked Mr. Ray to commit to share any internal documents with the Committee regarding communication between FTX and the SEC.
  • Mr. Ray stated that his team would fully cooperate with the Committee and regulatory authorities regarding its investigation.
• Rep. Emmer then remarked that blockchain technology and cryptocurrencies were meant to address the problems associated with centralization. He noted how Mr. Ray had asserted that FTX’s collapse had involved an “utter failure” of corporate controls at every level of its organization. He stated that FTX had disastrous or non-existent systems for accounting, audits, cash management, cybersecurity, human resources, and risk management. He commented that these “unacceptable” management practices had made it more difficult for Mr. Ray’s team to uncover the facts associated with FTX’s failure. He stated however that the immutable characteristics of public blockchains had enabled the cryptocurrency community to uncover former FTX CEO Sam Bankman-Fried’s fraud. He also stated that the public nature of blockchains would assist law enforcement agencies in their investigations into FTX. He attributed FTX’s collapse to centralization and business ethics failures rather than to technology failures. He expressed interest in working to ensure that the future of cryptocurrencies would reflect American values.

Rep. Sean Casten (D-IL):

• Rep. Casten asked Mr. Ray to confirm that the values associated with FTX’s bankruptcy were all denominated in U.S. dollars.
  • Mr. Ray answered affirmatively.
• Rep. Casten noted how there were public reports suggesting that there might have occurred some inflation or misrepresentation of the value of FTT tokens. He asked Mr. Ray to indicate whether his team was pursuing losses stemming from this reported inflation or misrepresentation.
  • Mr. Ray noted how FTT tokens were on Alameda Research’s balance sheet and commented that these tokens had served as collateral for the hedge fund. He also noted how Alameda Research had largely controlled the outstanding FTT tokens, which made these tokens illiquid. He stated that Alameda Research’s sizable position in FTT tokens had contributed to FTX’s overall financial problems.
• Rep. Casten stated that FTT tokens had been vulnerable to manipulation because the tokens themselves had been illiquid. He asked Mr. Ray to indicate whether FTT tokens had posed volatility risks to customers.
  • Mr. Ray remarked that all assets contained volatility risks and commented that FTT tokens had been very volatile.
• Rep. Casten commented that there was a difference between natural volatility and volatility stemming from manipulation. He then noted how former FTX CEO Sam Bankman-Fried had often discussed open margin positions in responding to commingling concerns. He asked Mr. Ray to address the difference between an open margin position and commingling.
  • Mr. Ray remarked that he had difficulties understanding former FTX CEO Sam Bankman-Fried’s previous statements on open margin positions. He noted how Alameda Research had maintained open margin positions at various times with the FTX exchange. He stated that Alameda Research’s customer relationship with FTX and other arrangements had enabled the hedge fund to borrow funds and take large positions. He commented that these large positions had resulted in large losses for Alameda Research when they were wrong. He asserted however that FTX’s commingling concerns were fundamentally different from FTX’s open margin position concerns. He stated that Alameda Research had taken money from FTX to cover its losing positions, which ultimately triggered a run on assets.
• Rep. Casten then mentioned how there was a hacker on November 12, 2022 that had stolen $477 million in tokens from FTX. He noted how former FTX CEO Sam Bankman-Fried had later stated in an interview that he had narrowed the list of possible suspects for this hack to eight people. He asked Mr. Ray to indicate whether he had a better understanding of this November 12, 2022 hack now.
  • Mr. Ray testified that he had not had any conversations with former FTX CEO Sam Bankman-Fried regarding the November 12, 2022 hack. He stated that his team was relying upon forensic and cybersecurity experts to investigate the hack and track the stolen cryptocurrencies. He also indicated that law enforcement agencies were involved in addressing this hack.
• Rep. Casten stated that the losses stemming from FTX’s collapse appeared to be confined to FTX’s four silos thus far. He asked Mr. Ray to indicate whether FTX’s collapse posed contagion issues for the broader market.
  • Mr. Ray noted how FTX had made $5 billion in investments in the cryptocurrency sector. He stated that the bankruptcy recovery process could impair this investment portfolio.

Rep. Lee Zeldin (R-NY):

• Rep. Zeldin noted how former FTX CEO Sam Bankman-Fried’s prepared testimony for the hearing had expressed his belief that Alameda Research’s net asset value had been substantially greater than $50 billion marked to market. He also noted how Mr. Bankman-Fried’s prepared testimony had stated that Almeda Research had maintained corresponding assets for roughly 90 percent of its positions in late 2021. He also noted that Mr. Bankman-Fried’s prepared testimony had indicated that the market value of Alameda Research’s assets had declined by over 50 percent during a three-day period in November 2022. He asked Mr. Ray to indicate whether he had observed any evidence of a market value drop in Alameda Research’s assets prior to November 2022.
  • Mr. Ray remarked that his team had not assessed the veracity of Mr. Bankman-Fried’s statements against market events. He noted that there had occurred volatility and a fall in cryptocurrency prices between late 2021 and November 2022. He called it unsurprising that Alameda Research’s amount of leverage had changed during this period. He stated however that Alameda Research’s positions did not have the auto-liquidation provisions that prevent the margin positions from losing more than their collateral amounts. He commented that these provisions were key to ensuring that brokerage firms were not harmed.
• Rep. Zeldin asked Mr. Ray to indicate whether his team was currently able to describe Alameda Rseaerch’s assets.
  • Mr. Ray testified that his team had an inventory of Alameda Research’s investments and noted how his team had retained Perella Weinberg Partners to make sense of these investments. He stated that some of these investments will be put up for sale. He then remarked that his team was able to easily identify Alameda Research’s crypto assets that were held on exchanges. He indicated that his team was working to secure these assets and to move them to cold storage. He also noted that his team also had visibility into other Alameda Research positions held in cold and hot wallets. He remarked however that his team must consider the possibility of unknown wallets existing. He stated that FTX’s lack of organization meant that there could exist wallets whose names and whereabouts were unknown. He commented that his team would face challenges tracking down these wallets. He concluded that his team would learn more about these assets in the coming weeks.
• Rep. Zeldin then asked Mr. Ray to discuss the documents that his team had uncovered with respect to the transfer of funds from FTX to Alameda Research.
  • Mr. Ray stated that while FTX’s recordkeeping had not been clean, he remarked that his team should be able to trace the movement of crypto assets between FTX and Alameda Research. He also indicated that his team would use FTX and Alameda Research’s banking records to identify the sources of their cash and how they used the cash to acquire assets. He noted that his team could assess how the assets had been used once the assets had been identified. He called this a “very intense” forensic process and stated that his team would possess the necessary records to determine the movement of funds.
• Rep. Zeldin expressed interest in receiving more detailed explanations of the currently available documents. He lastly asked Mr. Ray to describe the documents that his team had identified with respect to internal controls and governance at FTX and Alameda Research.
  • Mr. Ray stated that his team had not identified any documents relating to the internal controls and governance at FTX and Alameda Research. He asserted that FTX was “virtually void” of any internal controls and documentation. He testified that he had not seen any authorizations approving FTX’s “massive” loans to its corporate insiders. He commented that former FTX CEO Sam Bankman-Fried’s ability to unilaterally approve a loan to himself on behalf of FTX was telling.

Rep. Gregory Meeks (D-NY):

• Rep. Meeks remarked that blockchain technology could play a role in fostering financial inclusion and facilitating cross-border transactions. He stated however that the U.S. lacked safeguards to protect against misuses of blockchain technology by bad actors. He mentioned how his state of New York had been one of the first states to create a virtual currency licensing supervisory framework. He noted how Mr. Ray’s testimony had emphasized that FTX had maintained no internal controls and had criticized FTX’s governance structure. He asked Mr. Ray to indicate the extent to which FTX’s lack of a board of directors had contributed to its failure. He also asked Mr. Ray to indicate whether FTX’s problems could have been avoided had FTX’s poor governance practices been identified earlier.
  • Mr. Ray remarked that FTX’s lack of an independent board of directors had played a critical role in contributing to FTX’s failure.
• Rep. Meeks mentioned how New York required virtual currency business license holders to have highly liquid capital to ensure their financial integrity and to protect against outside shocks. He asked Mr. Ray to address how a capital requirement would have changed the outcome for FTX.
  • Mr. Ray stated that he was not a regulatory policy expert. He stated that it was important for customer accounts to be segregated and for there to be account transparency. He also called for strict rules surrounding the ability of exchanges to make use of customer assets. He stated that he would defer to regulatory policy experts on the optimal policies for overseeing cryptocurrencies.
• Rep. Meeks remarked that the Committee was working to develop an appropriate regulatory system for cryptocurrencies to ensure that cryptocurrency users would be protected. He asked Mr. Ray to address the extent to which U.S. persons were trading on FTX.com. He also asked Mr. Ray to indicate whether FTX had maintained adequate controls for restricting access to FTX.com for U.S. persons. He noted how U.S. persons appeared to have invested using FTX.com, despite the existence of restrictions.
  • Mr. Ray stated that there had been a “limited number” of U.S. persons that had invested using FTX.com and commented that such investments were not aligned with the exchange’s intended use. He remarked that his team would need to investigate how these U.S. persons had been able to invest using FTX.com.
• Rep. Meeks expressed interest in discussing New York’s rules and regulations for cryptocurrencies with Mr. Ray. He also raised concerns that FTX’s internal governance failures could have facilitated sanctions evasion and illegal transactions. He stated that sanctions compliance was critical for supporting countries like Ukraine and for combatting Russian aggression. He asked Mr. Ray to address whether his team had investigated sanctions evasions issues at FTX.
  • Mr. Ray stated that his team was investigating all of the aspects of FTX’s failure and expressed his interest in sharing his team’s findings with the Committee.

Rep. Barry Loudermilk (R-GA):

• Rep. Loudermilk noted how former FTX CEO Sam Bankman-Fried’s prepared testimony for the hearing had claimed that FTX.US remains solvent and could pay off all of its customers immediately. He asked Mr. Ray to comment on the veracity of this claim.
  • Mr. Ray called former FTX CEO Sam Bankman-Fried’s claim that FTX.US was solvent inaccurate and questioned how Mr. Bankman-Fried could make such an assertion. He highlighted how the number of customers and the volume of trading on FTX.US’s platform was much smaller than the number of customers and the volume of trading on FTX.com’s platform. He partially attributed this dynamic to the number of withdrawals that had taken place on FTX.US prior to FTX’s bankruptcy. He stated however that there were a few hundred million dollars in value that remained missing on the FTX platform. He also noted that there remained missing keys to FTX wallets. He expressed hope that finding these missing keys could provide a pathway for making FTX.US customers whole. He concluded that it remained premature to assert that FTX.US is currently solvent.
• Rep. Loudermilk asked Mr. Ray to explain why the FTX.US assets would be frozen if FTX.US were solvent. He also asked Mr. Ray to indicate whether there was any evidence of commingling of funds between FTX.com, FTX.US, and Alameda Research.
  • Mr. Ray stated that his team was currently assessing whether there had been a commingling of funds between FTX.com, FTX.US, and Alameda Research. He commented that he could not yet provide a definitive answer as to whether the funds had been commingled.
• Rep. Loudermilk then noted how former FTX CEO Sam Bankman-Fried had provided Bahamian regulators with an advanced warning of FTX’s bankruptcy filing. He indicated that this advanced warning had provided Bahamian investors with an opportunity to withdraw their funds. He noted that Mr. Bankman-Fried had justified this advanced warning as a way to ensure that the exchange could survive in the Bahamas. He also indicated that Mr. Bankman-Fried had stated that this early warning was meant to prevent anger from being directed at him while he was residing in the Bahamas. He asked Mr. Ray to comment on the accuracy of this explanation.
  • Mr. Ray stated that FTX’s liquidation proceeding in the Bahamas had been filed 24 hours prior to FTX’s bankruptcy filing. He noted that FTX accounts had been unfrozen in the Bahamas during the 24-hour period in between the two filings. He noted how over $100 million had been released from FTX accounts to approximately 1,500 Bahamian customers. He stated that these accounts were subsequently frozen following FTX’s bankruptcy filing. He noted how there had been communications between former FTX CEO Sam Bankman-Fried and the Bahamian government specifically related to this leakage of assets.
• Rep. Loudermilk asked Mr. Ray to confirm that former FTX CEO Sam Bankman-Fried would have known that a bankruptcy filing was imminent when he permitted Bahamian customers to withdraw funds from their FTX accounts.
  • Mr. Ray stated that former FTX CEO Sam Bankman-Fried had been in discussions with his counsel during this period.

Rep. Josh Gottheimer (D-NJ):

• Rep. Gottheimer mentioned how he had raised concerns about the SEC’s approach toward digital assets since 2019. He noted how SEC Chairman Gary Gensler had repeatedly claimed that most cryptocurrencies were covered under existing U.S. securities laws. He stated however that the SEC had not proposed a single rule to create guardrails for digital assets and has done a “haphazard” job of overseeing the digital assets space. He asserted that the SEC’s approach to digital assets had led to lack of certainty and a lack of clear rules. He contended that the SEC’s approach to digital assets was partially responsible for FTX’s collapse. He called on financial regulators to create “clear guardrails” for digital assets. He mentioned how he had proposed the Stablecoin Innovation and Protection Act of 2022, which sought to create consumer protections and prevent destabilizing runs on stablecoins. He also mentioned how he had invited CFTC Chairman Rostin Behnam to his Congressional District to discuss policies for protecting consumers within the digital assets space. He contended that the SEC had created a “patchwork” of ad hoc policies for cryptocurrency firms through “spotty” enforcement actions and random letters. He noted that while SEC Chairman Gensler had claimed that he already possessed the authority to oversee the cryptocurrency space, he stated that the SEC had not written rules on the topic and had failed to foresee and prevent failures within the cryptocurrency space. He remarked that the SEC must either address cryptocurrencies or allow another federal regulator to take the lead on overseeing digital assets. He asked Mr. Ray to indicate whether U.S. financial regulators would have been satisfied with the accounting and risk mitigation practices that were in place at FTX.com to prevent its failure from impacting FTX.US and American investors.
  • Mr. Ray stated that he could not speak to the proper regulatory structure for cryptocurrency firms. He stated that oversight is needed for cryptocurrency firms and that customers need more control over their accounts at these firms. He remarked that the Committee was best positioned to determine the proper regulatory oversight structure for cryptocurrency firms.
• Rep. Gottheimer noted how FTX’s U.S.-based cryptocurrency derivatives and clearing platform LedgerX (which is CFTC-regulated) had not been included in FTX’s bankruptcy filing. He indicated that LedgerX remained solvent. He noted how CFTC Chairman Behnam had recently argued that CFTC regulation of LedgerX had ensured that LedgerX had been insulated from the failure of other FTX-affiliated entities. He asked Mr. Ray to discuss what had protected LedgerX from the failures of the broader FTX ecosystem. He also asked Mr. Ray to identify actions that U.S. regulators (including the SEC) could have taken to protect FTX.US users.
  • Mr. Ray noted how LedgerX is a regulated entity, remains solvent, and has segregated customer accounts. He commented that these segregated customer accounts played an important role in protecting customers.
• Rep. Gottheimer asked Mr. Ray to indicate whether he believed former FTX CEO Sam Bankman-Fried’s claim that all FTX.US customers would be made whole at the concussion of FTX’s bankruptcy proceedings.
  • Mr. Ray called former FTX CEO Sam Bankman-Fried’s claim that all FTX.US customers would be made whole at the concussion of FTX’s bankruptcy proceedings “very speculative” at the current time.
• Rep. Gottheimer asked Mr. Ray to discuss his greatest outstanding questions for former FTX CEO Sam Bankman-Fried and his associates.
  • Mr. Ray remarked that his team was interested in determining where FTX’s assets were and working to locate these assets. He stated that his team would not be able to recover all of the losses stemming from FTX’s collapse and was focused on recovering as many assets as quickly as possible.
• Rep. Gotthemier asked Mr. Ray to provide an estimate for when his team would recover FTX’s assets.
  • Mr. Ray remarked that bankruptcies took time to resolve and commented that the process would take “months.” He stated that his team was working to recover these assets in an expeditious manner.

Rep. Warren Davidson (R-OH):

• Rep. Davidson noted how Mr. Ray’s initial statements had established that FTX.com customer assets had been commingled with Alameda Research’s assets and that Alameda Research had engaged in margin trading that exposed FTX.com customer funds to massive losses. He asked Mr. Ray to indicate whether the transfer of customer funds from FTX.com to Alameda Research had been in conflict with FTX.com’s terms of service.
  • Mr. Ray answered affirmatively. He stated that Alameda Research’s access to FTX.com customer funds had effectively provided the hedge fund with unlimited access to funds.
• Rep. Davidson asked Mr. Ray to indicate where the cash had gone when customers had made deposits into their FTX accounts.
  • Mr. Ray noted that FTX customer deposits were sometimes sent directly to Alameda Research. He indicated that there was a time period where FTX.com did not have a bank account. He stated that Alameda Research was structured as a customer of FTX.com and that Alameda Research had transferred money from FTX.com customers to support its own positions.
• Rep. Davidson asked Mr. Ray to indicate whether there was ever a settlement period during the transfer of funds from FTX.com customers to Alameda Research.
  • Mr. Ray stated that there were likely “thousands” of transfers involving FTX.com and Alameda Research and that his team would need to conduct detailed analyses for all of these transfers.
• Rep. Davidson interjected to ask Mr. Ray to indicate whether FTX had a structured settlement framework in any of their software or accounting systems.
  • Mr. Ray stated that it did not appear as if FTX maintained such a framework.
• Rep. Davidson then asked Mr. Ray to indicate whether he had ever worked on bankruptcies that involved custodies of stocks.
  • Mr. Ray answered affirmatively.
• Rep. Davidson stated that stocks usually involved a settlement process. He commented that FTX did not appear to have a settlement process.
  • Mr. Ray remarked that FTX did not have a reconciliation of its ledger on a day-to-day basis.
• Rep. Davidson asked Mr. Ray to indicate whether FTX’s assets on hand had ever matched the amount of its customer deposits.
  • Mr. Ray stated that his team would need to look into this question. He reiterated that FTX did not reconcile its ledger on a day-to-day basis and commented that his team must now perform such reconciliation to answer Rep. Davidson’s question.
• Rep. Davidson stated that FTX did not appear to have a way to reconcile custody on behalf of their customers. He asked Mr. Ray to indicate whether FTX had only acquired custody of cryptocurrencies upon request from their customers.
  • Mr. Ray noted how FTX had maintained a certain level of liquidity as part of its operations. He remarked that FTX’s problems stemmed from a run on its exchange, which prevented it from honoring all of its withdrawal requests. He stated that FTX’s commingling of funds across silos had exacerbated this problem.
• Rep. Davidson asked Mr. Ray to indicate whether assets that had been acquired on FTX’s exchanges that were later self-custodied were now completely safe.
  • Mr. Ray answered affirmatively.

Rep. Ayanna Pressley (D-MA):

• Rep. Pressley highlighted how over one million people (including some of her constituents) have not been made whole following FTX’s collapse. She noted how Mr. Ray had asserted that he had never seen as great of a failure of corporate controls and absence of trustworthy financial information as had occurred with FTX. She asked Mr. Ray to elaborate on FTX’s internal failures and inadequate policies that had contributed to its collapse.
  • Mr. Ray stated that FTX did not have centralized banking records, daily reconciliations of crypto assets, adequate (if any) insurance policies, an independent board of directors, safeguards to limit who controls an asset, and segregation of customer funds. He remarked that he had never seen an organization that had lacked so many internal controls during his professional career.
• Rep. Pressley asserted that FTX’s internal failures and inadequate policies were egregious and criminal. She then asked Mr. Ray to discuss how customer funds had been handled at FTX and to provide an exact amount of customer funds that had been misused at FTX.
  • Mr. Ray stated that FTX’s total losses remained unknown and indicated that his team would need to perform an accounting and tracing analysis to determine the number of customers affected. He noted that while his team currently knows the number of affected accounts, he highlighted how many users had multiple accounts. He stated that FTX had millions of customer accounts and that FTX accounts had experienced several billion dollars in losses. He remarked that his team must now assign these losses to specific customer accounts.
• Rep. Pressley noted how one report had estimated that FTX had misused $8 billion in customer account funds. She then asked Mr. Ray to indicate whether he had an estimate of the amount of funds that FTX would be able to repay.
  • Mr. Ray stated that his team did not currently have an estimate regarding the amount of funds that FTX would be able to repay. He remarked that his team uncovered and unlocked more of FTX’s assets every day. He stated however that his team anticipates that it will find that FTX had experienced massive losses. He expressed hope that his team would develop a better understanding of FTX’s losses in the coming weeks and would be able to provide more information about these losses to the public. He noted how the bankruptcy process was fully transparent, which meant that the public would be made fully aware of any developments.

Rep. Ted Budd (R-NC):

• Rep. Budd remarked that former FTX CEO Sam Bankman-Fried had lied to investors, violated FTX’s own terms of service, and knowingly and improperly loaned $10 billion in customer funds from FTX to his own hedge fund. He asserted that the U.S.’s top priority should be to make FTX investors financially whole. He discussed how FTX’s bankruptcy filing had noted several unacceptable practices on the part of FTX, including the use of software to conceal the misuse of customer funds and Alameda Research’s secret exemption from certain aspects of FTX.com’s auto liquidation protocol. He asked Mr. Ray to expand on these practices and to discuss his additional findings since FTX’s bankruptcy filing.
  • Mr. Ray remarked that Alameda Research had been able to transfer funds to its accounts without limits, which had enabled it to take large trading positions using other people’s money. He stated that the absence of an auto liquidation feature had led the losses of these trading positions to exceed the value of Alameda Research’s account balance.
• Rep. Budd asked Mr. Ray to project whether FTX’s outcome would have been the same had the company been domiciled within the U.S.
  • Mr. Ray remarked that FTX’s location was irrelevant to its failure considering the extent of the company’s lack of controls.
• Rep. Budd remarked that he had been a long-time support of both blockchain technology and the digital assets industry. He stated that FTX had engaged in fraud on a massive scale and called for former FTX CEO Sam Bankman-Fried to be prosecuted to the fullest extent of the law. He remarked that regulatory ambiguity coupled with the SEC’s “regulation by enforcement” approach had driven cryptocurrency companies offshore. He commented that this movement put the companies outside of U.S. oversight, which put U.S. investors at risk. He called on Congress to establish clear rules for the cryptocurrency industry and mentioned how he had introduced various pieces of legislation to provide such rules.

Rep. Ritchie Torres (D-NY):

• Rep. Torres criticized FTX for its poor corporate communications. He highlighted how FTX’s decisions regarding the disbursement of funds had been made using an online chat application and had involved personalized emojis. He then noted how former FTX CEO Sam Bankman-Fried had recently stated that the relationship between FTX and Alameda Research was closer than he had intended. He asserted however that the close relationship between FTX and Alameda Research was intentional. He stated that Mr. Bankman-Fried had used Alameda Research as a market maker to generate liquidity and trading revenues for FTX and then used FTX as a lender to generate leverage for Alameda Research. He asked Mr. Ray to indicate whether he agreed with this assessment of the relationship between FTX and Alameda Research.
  • Mr. Ray answered affirmatively.
• Rep. Torres asked Mr. Ray to indicate whether former FTX CEO Sam Bankman-Fried should have known that the conflict of interest between FTX and Alameda Research would have foreseeably culminated in the comingling of customer funds.
  • Mr. Ray stated that former FTX CEO Sam Bankman-Fried should have known that his actions would result in the present circumstances.
• Rep. Torres then mentioned how FTX had circulated a balance sheet to investors when it had sought a bailout. He indicated that FTX’s largest assets had been FTX-invented tokens and commented that the value of these tokens was thus reliant on FTX’s value as a company. He asked Mr. Ray to indicate whether FTX’s counting of its own tokens as assets on its balance sheet was fundamentally fraudulent.
  • Mr. Ray called it very risky for a company to use assets that it had created as collateral.
• Rep. Torres interjected to state that a corporate asset should be something with a value that was independent from its company. He asserted that cryptocurrency companies should not count their own tokens as assets because the value of these tokens was dependent on the company’s health.
  • Mr. Ray stated that he did not want to pass judgements on home grown tokens. He commented however that the use of one’s own assets as a source of collateral appeared inherently risky. He also speculated that FTX’s customers did not realize that FTX had been using its own assets as a source of collateral.
• Rep. Torres mentioned how FTX reportedly holds $900 million in liquid assets against $9 billion in liabilities. He indicated that the largest portion of these liquid assets was about $500 million in Robinhood stock. He noted that the Financial Times had reported that Emergent (which is a foreign entity controlled by former FTX CEO Sam Bankman-Fried) controls these Robinhood shares. He asked Mr. Ray to indicate who controlled FTX’s Robinhood shares.
  • Mr. Ray stated that former FTX CEO Sam Bankman-Fried does not control FTX’s Robinhood shares. He asserted that these shares were an asset of the FTX estate.
• Rep. Torres then mentioned how former FTX CEO Sam Bankman-Fried had recently told the New York Times that he had known that FTX had a problem on November 6, 2022. He noted however that Mr. Bankman-Fried had claimed via Twitter that FTX had enough assets to cover all client holdings on November 7, 2022. He asked Mr. Ray to indicate whether Mr. Bankman-Fried had been lying on November 7, 2022.
  • Mr. Ray remarked that former FTX CEO Sam Bankman-Fried had lied on November 7, 2022 when he had claimed that FTX had enough assets to cover all client holdings.

Rep. Anthony Gonzalez (R-OH):

• Rep. Gonzalez asked Mr. Ray to confirm that Alameda Research had taken out loans from various counterparties beyond FTX.
  • Mr. Ray confirmed that Alameda Research had taken out loans from various counterparties beyond FTX.
• Rep. Gonzalez asked Mr. Ray to indicate whether any of these loans had been called.
  • Mr. Ray stated that his team was reviewing the corporate history of FTX’s loan repayments. He indicated that some of these loans had been repaid.
• Rep. Gonzalez asked Mr. Ray to indicate whether customer funds had been transferred from FTX to Alameda Research for the purposes of paying off called loans.
  • Mr. Ray remarked that it was possible that customer funds had been transferred from FTX to Alameda Research for the purpose of paying off called loans. He stated however that his team would need to further investigate the situation before it could conclude that FTX customer funds had been used to pay off Alameda Research’s called loans.
• Rep. Gonzalez then noted how Mr. Ray’s testimony had described how FTX had used computer infrastructure that provided individuals in senior management with access to FTX’s system. He indicated that this computer infrastructure was often referred to as the “backdoor.” He noted how former FTX CEO Sam Bankman-Fried had repeatedly asserted that he had no knowledge of FTX’s commingling of funds across silos. He stated that this “backdoor” capability had provided Alameda Research with unlimited access to FTX’s customer accounts to fund their investments. He asked Mr. Ray to indicate whether it would have been possible for FTX’s senior management to not have been aware of this “backdoor” capability.
  • Mr. Ray answered no.
• Rep. Gonzalez then discussed how having sufficient data and information would be important for enabling Mr. Ray’s team to locate FTX’s outstanding assets as part of FTX’s bankruptcy process. He asked Mr. Ray to describe the quality of FTX and Alameda Research’s recordkeeping.
  • Mr. Ray expressed hope that there existed raw data surrounding FTX’s collapse and that his team would be able to make use of this raw data. He commented that the assembly of this raw data would be time consuming and indicated that his team must start this assembly process from the very beginning.
• Rep. Gonzalez asked Mr. Ray to indicate whether his team had any evidence suggesting that FTX had willfully destroyed data prior to his arrival at FTX.
  • Mr. Ray stated that his team was reviewing FTX’s messages on Slack. He noted however that the FTX executives had used disappearing messaging applications, which created a risk of lost messages.
• Rep. Gonzalez then discussed how former FTX CEO Sam Bankman-Fried’s prepared testimony for the hearing had spent a “considerable” amount of time addressing Binance and how Binance’s actions had created a run on FTX’s accounts. He asked Mr. Ray to indicate whether FTX had been solvent prior to Binance’s actions.
  • Mr. Ray answered no.
• Rep. Gonzalez stated that former FTX CEO Sam Bankman-Fried’s prepared testimony included many excuses and complaints. He specifically criticized Mr. Bankman-Fried’s complaints over FTX’s inability to access personal data. He then noted how FTX had transferred $100 million to 1,500 Bahamian accounts prior to its bankruptcy. He asked Mr. Ray to explain this transfer. He commented that this transfer appeared suspicious.
  • Mr. Ray called FTX’s large transfer of money to 1,500 Bahamian accounts prior to the company’s bankruptcy “alarming.” He stated that his team would investigate the recipients of these funds and the circumstances underlying this transfer.

Rep. Rashida Tlaib (D-MI):

• Rep. Tlaib raised concerns over FTX’s significant expenditures on celebrity endorsements and arena naming rights. She asked Mr. Ray to indicate how much FTX had spent on these endorsements and naming rights.
  • Mr. Ray stated that he did not currently have a breakdown of FTX’s expenditures on celebrity endorsements and arena naming rights. He also stated that he was not sure about the percentage of these expenditures paid out in cryptocurrencies and the percentage of these expenditures paid out in cash.
• Rep. Tlaib asked Mr. Ray to confirm the report that FTX had doubled its number of U.S. users following its 2022 Super Bowl advertisement.
  • Mr. Ray stated that he did not have data on the impact of FTX’s 2022 Super Bowl advertisement on the number of U.S. users.
• Rep. Tlaib asked Mr. Ray to indicate whether it had been financially responsible for FTX to have spent hundreds of millions of dollars on sponsorships and partnerships while the company had been unable to cover its deposits.
  • Mr. Ray answered no.
• Rep. Tlaib mentioned how her Congressional District was the third poorest Congressional District in the U.S. and commented that FTX’s collapse had negatively harmed her constituents. She also asserted that FTX’s advertisements often targeted her constituents. She stated that the cryptocurrency industry had spent millions of dollars on marketing and highlighted how FTX’s failure had caused significant losses for the Ontario Teachers’ Pension Plan. She called the assertion that cryptocurrencies could support financial inclusion goals both “laughable” and “dangerous.” She then raised concerns over the role that cryptocurrency exchange-created tokens played in the cryptocurrency industry’s business model. She noted how Alameda Research had held billions of dollars in FTT tokens, which had been created by FTX. She mentioned how FTX’s website had stated that FTT tokens served as the “backbone” for FTX’s ecosystem. She noted how the price of FTT tokens had dropped precipitously between Summer 2022 and November 2022. She stated that FTX had an interest in inflating the value of FTT tokens and that these tokens in turn propped up FTX. She asked Mr. Ray to confirm her understanding of this situation.
  • Mr. Ray stated that there might have existed a self-reinforcing relationship between the value of FTT tokens and the value of FTX.
• Rep. Tlaib then asked Mr. Ray to address the extent to which FTX.com was siloed from FTX.US.
  • Mr. Ray stated that FTX.com and FTX.US were structurally siloed. He stated however that FTX.com and FTX.US shared a common Amazon Web Services system.
• Rep. Tlaib interjected to asked Mr. Ray to indicate whether FTX.US users could make trades using FTT tokens.
  • Mr. Ray answered affirmatively.
• Rep. Tlaib asked Mr. Ray to discuss how the collapse in value of FTT tokens had negatively impacted the FTX.US silo and the ability of FTX.US customers to recover their funds.
  • Mr. Ray stated that his team did not have a full accounting of the crypto assets within each of FTX’s silos that had backed up customer accounts. He indicated that his team would need to determine the full value of the collateral.
• Rep. Tlaib asked Mr. Ray to explain how FTX had relied upon tokens that they controlled, minted, and could manipulate.
  • Mr. Ray stated that his team had not yet conducted a full investigation into FTX’s involvement with FTT tokens. He commented that this involvement could have played a role in FTX’s collapse and testified that his team would be investigating the matter.

Rep. John Rose (R-TN):

• Rep. Rose called the U.S.’s decision to arrest and charge former FTX CEO Sam Bankman-Fried 12 hours prior to his scheduled testimony at the hearing “interesting.” He stated that the hearing could have opened up Mr. Bankman-Fried to additional charges. He also questioned the SEC for waiting until the day of the hearing to file its own charges against Mr. Bankman-Fried. He criticized the job performance of SEC Chairman Gary Gensler and asserted that Chairman Gensler had failed to adequately protect investors. He further criticized Committee Democrats for having not had Chairman Gensler testify before the Committee over the previous 14 months. He expressed hope that the Committee would hold more oversight hearings of the SEC when House Republicans retake the majority in the 118th Congress. He then mentioned how FTX and Almeda Research held over $30 billion in Tether stablecoins. He asked Mr. Ray to describe the efforts that he was taking to ensure that the unwinding of FTX during the bankruptcy process would not cause unnecessary problems for digital asset markets.
  • Mr. Ray testified that his team was currently working to sequester and secure FTX’s digital assets in cold storage. He stated that his team had not liquidated these digital assets at the current time. He remarked that his team would work to distribute these digital assets in a manner that prevented them from depreciating in value. He commented that his team’s goal was to maximize the value of these digital assets for FTX’s customers.
• Rep. Rose then mentioned how FTX and Alameda Research had used customer funds to make investments in a variety of businesses and ventures. He asked Mr. Ray to indicate whether he had seen any documents indicating that the recipients of these investments had conducted any due diligence regarding the source of funds being used by FTX and Alameda Research.
  • Mr. Ray testified that he had not personally seen such documentation.
• Rep. Rose asked Mr. Ray to address whether he had seen any indications as to whether adequate due diligence from FTX’s institutional investors would have raised “red flags.”
  • Mr. Ray stated that he was unaware of the work conducted by FTX’s institutional investors. He commented that it was thus difficult for him to answer Rep. Rose’s question.
• Rep. Rose asked Mr. Ray to indicate whether any potential investors had passed on making an investment in FTX as a result of their due diligence processes.
  • Mr. Ray stated that he was not privy to the due diligence processes of potential FTX investors.
• Rep. Rose mentioned how he had owned a company prior to entering Congress. He noted how his company had kept “significant records” of the due diligence reports that it had both requested from other companies and responded to from other companies. He asked Mr. Ray to indicate whether FTX had kept any due diligence records on either itself or on other companies.
  • Mr. Ray stated that he was not aware of FTX maintaining due diligence records on either itself or on other companies. He described FTX’s recordkeeping as “very minimal” and highlighted how many of the transactional documents associated with FTX’s investments were missing.

Rep. Alma Adams (D-NC):

• Rep. Adams asked Mr. Ray to indicate whether FTX customers would ever fully recover their assets held on FTX platforms.
  • Mr. Ray remarked that his team was working diligently to recover and sequester FTX customer assets for ultimate return to customers. He stated that it remained too early in the recovery process to project whether customers would be made whole. He expressed hope that his team would maximize recoveries for FTX customers.
• Rep. Adams commented that it did not appear that Mr. Ray believed that FTX customers would ever fully recover their assets held on FTX platforms. She then asked Mr. Ray to indicate whether the losses suffered by FTX investors were the result of the risks inherent within the investment process or were the result of fraud.
  • Ms. Ray remarked that FTX’s operations made it vulnerable to materially risky losses and positions. He stated that a better managed company would have maintained controls and procedures to prevent losses.
• Rep. Adams asked Mr. Ray to discuss the quality of FTX’s bookkeeping and to indicate whether there existed a discrepancy between what FTX had disclosed to investors and its internal operations. She further asked Mr. Ray to provide an update on his team’s efforts to address any such disparity.
  • Mr. Ray remarked that the quality of FTX’s recordkeeping was “very poor” and testified that his team still did not have complete financial statements for all of FTX’s affiliated entities. He indicated that his team was currently working to construct these financial statements. He stated that there would be disclosures about the financial status of each of FTX’s affiliated entities in the coming months as part of the bankruptcy process.
• Rep. Adams then mentioned how Mr. Ray’s testimony had discussed the existence of a computer infrastructure that gave senior FTX management personal access to customer funds. She asked Mr. Ray to describe examples of the misuse of customer funds that took place as a result of these vulnerabilities.
  • Mr. Ray remarked that FTX’s main problem was their using of customer funds for non-intended purposes. He elaborated that FTX had used customer funds for their own investments, expenditures, and trading. He commented that the losses stemming from these trades ultimately harmed FTX customers.

Rep. Bryan Steil (R-WI):

• Rep. Steil remarked that the efforts of policymakers to understand FTX’s collapse were complicated by the fact that FTX was domiciled in a foreign jurisdiction. He also noted that former FTX CEO Sam Bankman-Fried appeared to be located in a foreign jurisdiction at the current time. He expressed interest in determining why FTX had chosen to domicile itself in a non-U.S. jurisdiction. He then mentioned how there had been a news report that FTX had experienced a hack or potential theft immediately following its bankruptcy filing. He noted how Mr. Ray had stated that unauthorized access to certain FTX assets had occurred and that FTX had been in contact with law enforcement officials and regulators. He asked Mr. Ray to indicate whether he had determined whether assets had moved out of FTX following the company’s bankruptcy declaration.
  • Mr. Ray testified that assets had moved out of FTX following the company’s bankruptcy declaration.
• Rep. Steil asked Mr. Ray to indicate whether this movement of assets had been the result of a hack or had been done at the direction of the Bahamian authorities.
  • Mr. Ray stated that both a hack and the Bahamian authorities had been responsible for the post-bankruptcy declaration movement of FTX’s assets.
• Rep. Steil asked Mr. Ray to address why the Bahamian authorities had requested that FTX move assets following the company’s bankruptcy declaration.
  • Mr. Ray stated that the Bahamian authorities had not requested the movement of FTX assets post-bankruptcy declaration and had instead demanded the movement of FTX assets post-bankruptcy declaration.
• Rep. Steil asked Mr. Ray to indicate whether FTX employees had played any role in the movement of FTX assets directed by Bahamian authorities.
  • Mr. Ray stated that FTX’s former employees aided the Bahamian authorities in moving FTX assets post-bankruptcy declaration.
• Rep. Steil asked Mr. Ray to explain why the Bahamian authorities had demanded the movement of FTX assets post-bankruptcy declaration.
  • Mr. Ray noted that there was no transparency into the decision making process of the Bahamian authorities. He indicated that his team had repeatedly asked the Bahamian authorities to provide clarity as to why they had demanded the movement of FTX assets post-bankruptcy declaration. He testified that the Bahamian authorities had been unresponsive to his team’s inquiries.
• Rep. Steil asked Mr. Ray to clarify whether the Bahamian authorities had not replied to his team’s inquiries or had replied in an unsatisfactory manner to his team’s inquiries.
  • Mr. Ray noted that the Bahamian authorities had stated that their demands for the movement of FTX assets were in the interest of Bahamian creditors. He asserted however that this movement of funds was in violation of the bankruptcy’s automatic stay.
• Rep. Steil asked Mr. Ray to indicate whether responses from Bahamian authorities to his team’s questions would support his team’s investigations.
  • Mr. Ray answered affirmatively.
• Rep. Steil asked Mr. Ray to indicate whether former FTX CEO Sam Bankman-Fried had sought to undermine FTX’s bankruptcy process through moving assets to accounts under the control of Bahamian authorities.
  • Mr. Ray answered affirmatively.
• Rep. Steil asked Mr. Ray to indicate whether the Chapter 15 bankruptcy case for FTX Digital Markets should be consolidated into the U.S. Bankruptcy Court for the District of Delaware.
  • Mr. Ray answered no.
• Rep. Steil asked Mr. Ray to provide recommendations for addressing the bankruptcy of FTX Digital Markets.
  • Mr. Ray noted how FTX Digital Markets was currently undergoing a liquidation proceeding. He stated that the Chapter 11 bankruptcy process is the only open and transparent process that enabled customers to learn about what had occurred with an entity and when they would recover their money. He asserted that the bankruptcy process occurring in the Bahamas was not transparent and testified that his team had experienced “extraordinary” pushback from Bahamian authorities. He stated that his team still had many unanswered questions from Bahamian authorities related to FTX’s collapse and called the Bahamian response “irregular.”
• Rep. Steil then noted how a large number of cryptocurrency companies had chosen to domicile outside of the U.S. and expressed concerns that the U.S.’s lack of a regulatory framework for cryptocurrencies was driving these companies offshores. He remarked that the foreign domiciling of cryptocurrency companies could create problems for Americans when such companies perpetrated frauds.

Rep. Stephen Lynch (D-MA):

• Rep. Lynch noted how former FTX CEO Sam Bankman-Fried’s prepared testimony for the hearing had asserted that FTX’s collapse was accidental in nature and that Mr. Bankman-Fried was unaware of FTX’s various activities. He stated however that FTX’s structure and Bahamian headquarters indicates that FTX had deliberately attempted to avoid the U.S.’s jurisdiction and securities laws. He noted how SEC Chairman Gary Gensler had stated that the U.S. had laws that would have protected FTX’s investors and customers had FTX been registered in the U.S. He asked Mr. Ray to indicate whether he agreed with SEC Chairman Gensler’s statement.
  • Mr. Ray remarked that he is not familiar with the specific policies that SEC Chairman Gary Gensler had been referring to in his statement. He stated however that FTX had operated without regulations and commented that regulations would have helped to protect FTX’s investors and customers.
• Rep. Lynch also mentioned how the U.S. Attorney’s Office for the Southern District of New York had just unsealed its criminal indictment against former FTX CEO Sam Bankman-Fried. He indicated that this criminal indictment includes charges of wire fraud and conspiracy to defraud the U.S. and violate U.S. campaign finance laws. He asked Mr. Ray to indicate whether he was in possession of any information that would countervail the charges from the U.S. Attorney’s Office for the Southern District of New York.
  • Mr. Ray testified that his team had made all of its information about FTX available to U.S. regulators and enforcement agencies. He commented that U.S. regulators and enforcement agencies were drawing the same conclusions about FTX as his team.
• Rep. Lynch remarked that former FTX CEO Sam Bankman-Fried appears to have intentionally, willfully, and conscientiously engaged in fraud in his structuring of FTX.
  • Mr. Ray commented that while he could not draw conclusions on former FTX CEO Sam Bankman-Fried’s intentions, he stated that the results of Mr. Bankman-Fried’s actions had been “disastrous” for FTX customers.
• Rep. Lynch then asked Mr. Ray to confirm the reports that only 2 percent of FTX’s defrauded customers were in the U.S.
  • Mr. Ray stated that he was unsure whether these calculations were being made on a customer basis or a value basis. He noted how U.S. investors had primarily used FTX.US and commented that the relative losses on FTX.US were a “fraction” of FTX’s total losses. He asserted however that it remained too early to determine the extent of FTX’s losses across its various silos. He stated that FTX.US customers would suffer less than FTX.com customers because Alameda Research had siphoned cash and assets away from FTX.com.
• Rep. Lynch then discussed how FTX had engaged in extensive advertising and endorsement campaigns and stated that many of these campaigns had been targeted toward minority communities. He indicated that former FTX CEO Sam Bankman-Fried had viewed FTX as a tool to promote access to banking services for unbanked individuals. He asked Mr. Ray to indicate whether FTX’s advertising and endorsement campaigns had led U.S. citizens to become involved in FTX’s collapse.
  • Mr. Ray commented that he did not have a professional view on the impact of FTX’s advertising and endorsement campaigns on U.S. citizens.

Rep. Madeleine Dean (D-PA):

• Rep. Dean noted how Mr. Ray had indicated that he had accepted the position of FTX CEO on November 11, 2022 and had quickly realized the necessity of a bankruptcy filing. She also noted how Mr. Ray had indicated that FTX’s debtors and their representatives had worked “tirelessly” to secure assets immediately filing FTX’s bankruptcy filing. She further noted how Mr. Ray had recently indicated that at least two sources had accessed FTX’s debtor systems on November 11, 2022 and November 12, 2022. She asked Mr. Ray to identify these two sources.
  • Mr. Ray stated that there were two situations involving sources accessing FTX’s debtor systems on November 11, 2022 and November 12, 2022. He indicated that the first situation involved the hack of FTX’s systems from a third party. He stated that his team was currently tracing this hack using cyber teams. He also mentioned how the U.S. government was helping his team to track the ultimate location of these stolen crypto assets. He indicated that the second situation involved the Bahamian government taking control of certain crypto assets held on the FTX platform. He noted that the previous FTX management team had assisted the Bahamian government in this effort.
• Rep. Dean noted how the Bahamian government had instructed the previous FTX management team to mint a substantial number of new tokens and to transfer hundreds of millions of dollars in these new tokens to cold storage. She asked Mr. Ray to explain what this minting of tokens entailed.
  • Mr. Ray indicated that this minting of new tokens involved FTT tokens, which were FTX-created tokens. He stated that this instruction had led FTT tokens to be transferred to the Bahamian government.
• Rep. Dean asked Mr. Ray to indicate the value of money that had been minted in FTT tokens and transferred to the Bahamian government.
  • Mr. Ray stated that FTX had minted and transferred approximately $300 million in FTT tokens to the Bahamian government.
• Rep. Dean asked Mr. Ray to confirm that former FTX CEO Sam Bankman-Fried and former FTX Executive Gary Wang had minted additional FTT tokens and had transferred the tokens at the behest of the Bahamian government.
  • Mr. Ray testified that his team had information that both former FTX CEO Sam Bankman-Fried and former FTX Executive Gary Wang had been involved in the minting of FTT tokens and the transferring of said tokens to the Bahamian government. He stated however that he was unsure as to who exactly had minted and transferred the tokens.
• Rep. Dean asked Mr. Ray to confirm that this minting of additional FTT tokens and transferring of the tokens to the Bahamian government had occurred after FTX’s bankruptcy filing.
  • Mr. Ray confirmed that this minting activity and transfer of funds had occurred post-bankruptcy when the automatic stay had been in effect.
• Rep. Dean asked Mr. Ray to explain how FTX had been able to mint additional FTT tokens and transfer said tokens to a foreign government following their bankruptcy filing.
  • Mr. Ray noted how a small number of people had total control over FTX’s assets. He stated that FTX’s lack of internal controls and documentation had enabled these people to take full control over FTX’s assets.
• Rep. Dean asked Mr. Ray to indicate whether the misuse of FTX’s keys, the minting of FTT tokens, and the transferring of FTX’s assets had ended.
  • Mr. Ray testified that his team had not observed any additional evidence that hacks had occurred at FTX. He stated that his team had prevented FTX’s founders and former management team from becoming involved with FTX. He remarked however that the ability of FTX’s founders and former management team to take crypto assets from FTX and put them into cold storage remained unknown. He expressed hope that his team would be able to locate any stolen crypto assets that had been placed into cold storage.

Rep. Alexandria Ocasio-Cortez (D-NY):

• Rep. Ocasio-Cortez noted how CoinDesk had leaked FTX’s balance sheet on November 2, 2022 and how Binance had signed a non-binding letter to acquire FTX on November 8, 2022. She also indicated that former FTX CEO Sam Bankman-Fried had frozen withdrawals from the FTX platform at this time. She stated however that Binance had announced that it would not proceed on its FTX purchase on November 9, 2022. She noted how Mr. Bankman-Fried had emailed the Bahamian Attorney General on November 9, 2022 with an offer that FTX would unfreeze FTX platform withdrawals for just Bahamian customers. She asked Mr. Ray to confirm the existence of this offer from Mr. Bankman-Fried to the Bahamian Attorney General.
  • Mr. Ray confirmed that former FTX CEO Sam Bankman-Fried had emailed the Bahamian Attorney General offering to unfreeze FTX platform withdrawals for just Bahamian customers.
• Rep. Ocasio-Cortez noted that FTX Digital Markets was placed into a foreign provisional liquidation in the Bahamas on November 10, 2022. She stated that former FTX CEO Sam Bankman-Fried then made good on his previous offer to the Bahamian Attorney General through exclusively opening withdrawals on the FTX platform within the Bahamas for a period of 25.5 hours. She indicated that $100 million had been withdrawn from FTX during this period from the Bahamas by 1,500 individuals. She highlighted how these withdrawals had immediately preceded Mr. Ray’s appointment as FTX’s CEO. She then recounted how the Bahamian-appointed joint-provisional liquidators had argued before the U.S. Bankruptcy Court on November 16, 2022 that the Bahamian liquidation of FTX should be recognized as the main foreign proceeding involving FTX. She asked Mr. Ray to indicate whether this recognition would be of any potential value to Mr. Bankman-Fried.
  • Mr. Ray remarked that the Bahamian government was attempting to get control of FTX’s bankruptcy process.
• Rep. Ocasio-Cortez asked Mr. Ray to indicate whether his team had uncovered any evidence demonstrating that former FTX CEO Sam Bankman-Fried had permitted withdrawals from the FTX platform in the Bahamas post-bankruptcy filing in exchange for the promise of some control or influence over FTX.com.
  • Mr. Ray testified that his team intended to look into this issue.
• Rep. Ocasio-Cortez then noted how Mr. Ray had filed a declaration in U.S. Bankruptcy Court yesterday afternoon that had made several new revelations regarding FTX. She highlighted how this filing was fully public, including to former FTX CEO Sam Bankman-Fried and Bahamian officials. She noted that the Bahamian government had arrested Mr. Bankman-Fried shortly following this declaration. She mentioned that the Bahamian government had indicated that the U.S. had made a formal request for the extradition of Mr. Bankman-Fried. She noted however that the Bahamian government had not indicated when such a request had been made. She asked Mr. Ray to indicate whether information about the timing of the extradition was important for policymakers.
  • Mr. Ray answered affirmatively. He indicated that his team currently did not have a full timeline of these events and expressed his team’s interest in determining this timeline.

Rep. Sylvia Garcia (D-TX):

• Rep. Garcia remarked that FTX did not have any controls or transparency and commented that there might have occurred more improprieties than were currently known. She then asked Mr. Ray to confirm that FTX International had been found prior to FTX.US.
  • Mr. Ray answered affirmatively.
• Rep. Garcia asked Mr. Ray to confirm that U.S. customers had been unable to use the FTX platform prior to the establishment of FTX.US. She commented that FTX International was for non-U.S. customers.
  • Mr. Ray confirmed that U.S. customers had been unable to use the FTX platform prior to the establishment of FTX.US.
• Rep. Garcia asked Mr. Ray to provide the total number of FTX.US customers.
  • Mr. Ray indicated that his team did not have an accurate customer count for FTX.US. He noted FTX.US had about 2.7 million users. He stated however that many customers had maintained multiple user accounts and that many of this user accounts had $0 balances.
• Rep. Garcia asked Mr. Ray to confirm that FTX.US customers had accounted for 2 percent of all FTX customers.
  • Mr. Ray expressed uncertainty regarding this calculation. He stated that both the number of FTX.US customers and the value of FTX.US customer holdings were relatively small compared to the number of FTX.com customers and the value of FTX.com customer holdings.
• Rep. Garcia asked Mr. Ray to indicate how many retail customers had been harmed by FTX’s collapse.
  • Mr. Ray indicated that his team did not have a breakdown of institutional customers that had lost money from FTX’s collapse relative to retail customers that had lost money from FTX’s collapse. He stated that FTX’s collapse had harmed many individuals and highlighted how consumers could easily access cryptocurrency accounts.
• Rep. Garcia asked Mr. Ray to clarify whether his team possessed FTX customer data or only possessed FTX account numbers.
  • Mr. Ray stated that his team could use FTX account number information to figure out the names associated with the accounts. He stated however that it might be difficult to determine the identities behind some of these account names.
• Rep. Garcia asked Mr. Ray to indicate whether his team possessed information about the demographics and locations of FTX customers.
  • Mr. Ray stated that his team could accumulate such information and provide demographic breakdowns.
• Rep. Garcia expressed interest in working to help her constituents who had been harmed by FTX’s collapse. She noted how Mr. Ray had previously expressed uncertainty as to whether FTX’s customers would be made whole. She asked Mr. Ray to indicate whether his uncertainty was confined to FTX’s U.S. customers.
  • Mr. Ray expressed uncertainty as to whether all of FTX’s customers could be made whole. He stated that the extent of the harm stemming from FTX’s collapse was greater on the international side. He remarked that it remained premature to project if and when all of FTX.US’s assets would be recovered.
• Rep. Garcia highlighted how a Morning Consult study had found that one-quarter of Black and Latino respondents had owned a cryptocurrency. She indicated that the same study had found that just 17 percent of White respondents had owned a cryptocurrency. She stated that Mr. Ray’s team must work to ensure that its recovery efforts are equitable.

Rep. William Timmons (R-SC):

• Rep. Timmons noted how the Enron fraud trial had taken nearly four months to complete. He asked Mr. Ray to indicate whether it would have been helpful to U.S. prosecutors in the Enron fraud trial to have had the defendants testify for six hours under oath before Congress prior to the trial.
  • Mr. Ray noted that Enron’s bankruptcy process had been completed prior to the commencement of the Enron fraud trial in 2006.
• Rep. Timmons interjected to ask Mr. Ray to indicate whether it would have been helpful to U.S. prosecutors in the Enron fraud trial to have had the defendants testify before Congress under oath before the defendants had been arrested.
  • Mr. Ray answered affirmatively.
• Rep. Timmons asked Mr. Ray to explain why the U.S. Attorney’s Office for the Southern District of New York had sent a provisional arrest warrant for former FTX CEO Sam Bankman-Fried to the Bahamian government within 36 hours of Mr. Bankman-Fried’s scheduled testimony before the Committee. He commented that Mr. Bankman-Fried’s testimony before the Committee could have assisted U.S. prosecutors in building their case against Mr. Bankman-Fried.
  • Mr. Ray stated that he could not speak on behalf of the U.S. Attorney’s Office for the Southern District of New York.
• Rep. Timmons asserted that the U.S. Attorney’s Office for the Southern District of New York’s decision to arrest former FTX CEO Sam Bankman-Fried immediately prior to his scheduled testimony before the Committee was “bizarre.” He mentioned how he had previously worked as a prosecutor and stated that having a defendant testify under oath before Congress prior to a trial would help prosecutors to build their cases. He noted how the grand jury had returned Mr. Bankman-Fried’s indictment on December 9, 2022 and commented that U.S. prosecutors could wait weeks to bring charges following an indictment. He stated that a DoJ official had thus made a conscious decision to prevent Mr. Bankman-Fried from testifying before the Committee. He noted how Mr. Bankman-Fried’s prepared testimony for the hearing argued that Mr. Bankman-Fried lacks criminal intent to commit fraud and that he had been pressured to file bankruptcy for FTX. He asked Mr. Ray to address whether Mr. Bankman-Fried was now attempting to recover control of FTX and its various affiliates.
  • Mr. Ray stated that his only knowledge about former FTX CEO Sam Bankman-Fried’s current actions came from press releases. He testified that he had not spoken to Mr. Bankman-Fried.
• Rep. Timmons then asked Mr. Ray to indicate whether it was fair to assert that joint-provisional liquidators in the Bahamas were attempting to take control of FTX’s bankruptcy process.
  • Mr. Ray answered affirmatively.
• Rep. Timmons asked Mr. Ray to indicate whether his team would be pursuing the $100 million that had been taken from FTX’s accounts post-bankruptcy filing by 1,500 Bahamian citizens.
  • Mr. Ray answered affirmatively.
• Rep. Timmons asked Mr. Ray to indicate whether his team would seek to claw back this $100 million and distribute the money appropriately
  • Mr. Ray stated that his team would pursue every course of action to recover FTX’s outstanding funds.
• Rep. Timmons asked Mr. Ray to indicate whether his team would work to maintain control of FTX and keep it in the Chapter 11 bankruptcy process.
  • Mr. Ray answered affirmatively. He stated that the U.S. bankruptcy process had transparency and could maximize value for creditors.
• Rep. Timmons concluded that he was interested in learning why the DoJ had issued its provisional arrest warrant to preclude former FTX CEO Sam Bankman-Fried from testifying before the Committee.

Rep. Jesús “Chuy” García (D-IL):

• Rep. García remarked that FTX’s collapse was not an anomaly and called FTX’s collapse symptomatic of an industry that viewed itself as “above the law.” He mentioned how several other cryptocurrency businesses, including Binance, Tether, Terra Luana, and Digital Currency Group, were facing investigations and contained structural problems. He contended that the cryptocurrency industry was in “crisis” because crypto assets lacked inherent value. He stated that cryptocurrency companies were solely relying upon hype to make money and that this strategy was not sustainable. He commented that the collapse of cryptocurrency companies tended to disproportionately harm low-income people and people of color. He then noted how Mr. Ray’s November 17, 2022 filing had indicated that unauthorized minting of FTT tokens had occurred following FTX’s bankruptcy filing and that the value of these tokens was approximately $300 million. He noted that Mr. Ray’s December 12, 2022 filing had stated that there were two sources of this unauthorized minting of FTT tokens. He indicated that while the first source of this unauthorized minting of FTT tokens remained under investigation, he stated that the second source of this unauthorized minting of FTT tokens had been confirmed “without doubt” according to Mr. Ray’s filing. He asked Mr. Ray to identify this source of unauthorized minting of FTT tokens.
  • Mr. Ray stated that the second source of unauthorized minting of FTT tokens was the Securities Commission of the Bahamas.
• Rep. García then highlighted how FTX had lacked independent governance structures. He asked Mr. Ray to discuss how FTX had lacked independent governance and to address the risks that this lack of independent governance had created.
  • Mr. Ray noted that FTX had lacked an independent board of directors. He stated that the absence of corporate oversight from an independent board of directors had provided a small number of individuals with total control over FTX. He commented that this absence of governance controls was atypical for a company of FTX’s size.
• Rep. García then mentioned how FTX had requested that its customers send their money to Alameda Research (rather than FTX). He noted how former FTX CEO Sam Bankman-Fried had attributed this request to the fact that FTX had initially lacked a bank account. He also noted how Mr. Bankman-Fried had recently expressed uncertainty as to whether assets had been transferred from Alameda Research to FTX after FTX’s early days in business. He asked Mr. Ray to indicate how long FTX customers had been instructed to send funds to Alameda Research that had been meant for FTX.
  • Mr. Ray stated that his team did not have a precise timeline regarding these activities and indicated that his team was working to develop such a timeline. He also stated that his team would seek to investigate the communications provided to customers from FTX regarding the requests that funds be deposited with Alameda Research.
• Rep. García asked Mr. Ray to indicate whether the customer funds that had been deposited with Alameda Research had been subsequently moved to FTX.
  • Mr. Ray remarked that Alameda Research had received an allocation of FTX customer funds that had been utilized for non-intended purposes.

Full Committee Vice Chair Jake Auchincloss (D-MA):

• Vice Chair Auchincloss noted how former FTX CEO Sam Bankman-Fried’s prepared testimony for the hearing had made two pointed assertions. He indicated that the first assertion from this testimony was that Mr. Ray’s team had not engaged with him and had not provided him access to his passwords and accounts. He asked Mr. Ray to explain why his team was not providing Mr. Bankman-Fried with access to his passwords and accounts.
  • Mr. Ray stated that his team wanted to conduct an independent examination of FTX and did not want to rely upon potentially compromised people. He also stated that former FTX CEO Sam Bankman-Fried had requested access to a system that he had sought to distribute assets from following FTX’s bankruptcy filing.
• Vice Chair Auchincloss interjected to comment that Mr. Ray’s justifications for not involving former FTX CEO Sam Bankman-Fried in his recovery efforts were valid. He then indicated that the second assertion from Mr. Bankman-Fried’s prepared testimony was that he could raise sufficient funds and make customers whole if he were allowed to restart FTX. He asked Mr. Ray to respond to this assertion.
  • Mr. Ray remarked that he did not find former FTX CEO Sam Bankman-Fried’s assertion that he could make customers whole “remotely believable” based on his professional experience doing corporate restructurings. He stated that an investor in FTX would need to pay several billion dollars so that the company could return to its pre-bankruptcy state and suggested that most investors would not want to do this.
• Vice Chair Auchincloss then applauded both Rep. Alexandria Ocasio-Cortez (D-NY) and Rep. William Timmons (R-SC) for their lines of questioning regarding the timeline of FTX’s collapse. He noted how FTX had faced a liquidity crisis on November 6, 2022 and had halted withdrawals on November 8, 2022. He indicated however that former FTX CEO Sam Bankman-Fried had sent an email to the Bahamian Attorney General on November 9, 2022 indicating that Bahamian customers could make withdrawals. He noted how nearly $100 million in cryptocurrency had been withdrawn by parties asserting to be Bahamian customers on November 10, 2022. He then mentioned how Mr. Bankman-Fried had been arrested before he was set to provide hours of sworn testimony to the Committee. He asked Mr. Ray to commit to informing the Committee of any evidence suggesting that Mr. Bankman-Fried had improperly colluded with any government or law enforcement authorities.
  • Mr. Ray expressed his commitment to informing the Committee of any evidence suggesting that Mr. Bankman-Fried had improperly colluded with any government or law enforcement authorities.
• Vice Chair Auchincloss lastly remarked that he was agnostic regarding cryptocurrencies and commented that he was focused on protecting consumers, preserving market integrity, and advancing the U.S. dollar as the world’s reserve currency. He stated however that his patience with cryptocurrency advocates was “wearing thin.” He commented that Ponzi schemes were very prevalent within the cryptocurrency space. He also stated that the promised benefits of blockchain technology had not yet materialized, despite years of hype from advocates. He asserted that the failure to construct innovations within the blockchain technology space would cause cryptocurrency advocates to lose even more credibility.

Rep. Lance Gooden (R-TX):

• Rep. Gooden discussed how FTX had almost no recordkeeping, no risk management, and no accounting under former CEO Sam Bankman-Fried. He highlighted how FTX had no accountants on its payroll. He noted how Mr. Bankman-Fried had told Bloomberg Businessweek that he had been responsible for FTX’s accounting. He asked Mr. Ray to indicate whether he was aware of any additional digital wallets that FTX’s co-founders potentially have access to that contain debtor assets.
  • Mr. Ray answered no.
• Rep. Gooden also stated that there was very little attention provided to the banks that FTX had relationships with. He expressed interest in the ties between FTX and Farmington State Bank and mentioned how Alameda Research had invested $11.5 million in Farmington State Bank’s parent company. He asked Mr. Ray to address why a small agricultural lending bank with no experience within the financial technology (FinTech) and cryptocurrency spaces had a relationship with FTX.
  • Mr. Ray stated that his team did not have an explanation for this investment and was investigating the relationship between Farmington State Bank and FTX.
• Rep. Gooden noted how Alameda Research’s business model as a market maker had required it to deploy funds to various third-party exchanges that were “inherently unsafe.” He commented that these safety concerns were further exacerbated by the limited protections offered in certain foreign jurisdictions. He asked Mr. Ray to indicate whether any of FTX’s co-founders or their family members had affiliations with third-party exchanges that receive funds from Alameda Research.
  • Mr. Ray stated that his team was investigating whether there had been affiliations between FTX’s co-founders or their family members and third-party exchanges that receive funds from Alameda Research.

Full Committee Ranking Member Patrick McHenry (R-NC):

• Ranking Member McHenry stated that the Committee would continue investigating FTX’s collapse in the upcoming 118th Congress.