FTX Chief: Company Appeared to Use ‘Old-Fashioned Embezzlement’

The new chief executive of FTX answered questions about his efforts to recover customer funds from the collapsed crypto exchange during a lengthy hearing before lawmakers on Tuesday, saying his team had encountered an “unprecedented” lack of record keeping at the company.

John J. Ray III, a lawyer who specializes in corporate restructuring, testified for roughly four hours, saying that he was in the early stages of sorting through the exchange to find money that could be used to repay creditors and consumers.

“The assets will take time to locate,” Mr. Ray said. “The process, as I say, will take months, not weeks. But we try to do this in the most expeditious way possible.”

He described FTX as a company that had kept few records about its business, including tracking invoices in the messaging app Slack and using the consumer tax software QuickBooks, which is unusual for a multibillion-dollar company. He also said that while his team had saved the company’s Slack, it was also aware of the company using “disappearing messaging.”

Asked about whether customers would get their money back, Mr. Ray demurred.

“It’s too early to tell what the ultimate recovery will be to each particular customer. At some point, we’ll obviously know that, and we hope obviously to maximize that,” he said.

“OK, it doesn’t sound like you really think they’re going to get their money back,” said Representative Alma Adams, a North Carolina Democrat.

Mr. Ray was asked to quantify the epic collapse of FTX and compare it with the collapse at Enron. Mr. Ray oversaw the unwinding of the energy trading company after an accounting scandal in 2001.

He said they were distinct situations and called the perpetrators of Enron’s crimes “highly sophisticated,” whereas FTX executives appeared to have engaged in “really just old-fashioned embezzlement” and were not at all sophisticated.

Nonetheless, Mr. Ray’s responses suggested that he believed Sam Bankman-Fried, FTX’s former chief executive, was well aware of fraud at the company. At one point, he was asked if it would have been possible for Mr. Bankman-Fried to not have known of the mixing of funds between FTX entities, as he has claimed previously, including in interviews with The New York Times.

“No,” Mr. Ray responded.

On Tuesday, prosecutors charged Mr. Bankman-Fried with defrauding investors. He also faces civil securities fraud charges.

Lawmakers called for new regulations over the crypto industry. Representative Jake Auchincloss, Democrat of Massachusetts, said his “patience with the crypto bulls is wearing thin.”

“It’s been 14 years and the American public has heard lots of promises, but it has seen lots of Ponzi schemes,” he said. “For crypto, it’s time to put up or shut up.”

When lawmakers did speak directly about Mr. Bankman-Fried, who wooed politicians on both sides of the aisle before FTX’s collapse, they were critical.

Representative Brad Sherman, Democrat of California and a longtime crypto critic, reminded his colleagues of the bigger picture. “Don’t trash Sam Bankman-Fried and then pass his bill,” Mr. Sherman said, referring to Mr. Bankman-Fried’s extensive lobbying in Washington and efforts to push crypto legislation that would work for FTX.

Asked what role Mr. Bankman-Fried would play in the company going forward, Mr. Ray was succinct.

“The role he’s currently playing: zero,” he said.

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