FTX committed 'old fashioned embezzlement,' CEO tells lawmakers in blistering hearing

FTX CEO John J. Ray told the House Financial Services Committee that the cryptocurrency exchange founder Sam Bankman-Fried lied when he tweeted that the company "has enough to cover all client holdings."

The since deleted tweet was published by Bankman-Fried on Nov. 7, just days before he stepped down as CEO of FTX and his company filing for Chapter 11 bankruptcy.

"Absolutely not," Ray said after committee member Rep. Ritchie Torres, D-N.Y., asked whether that tweet was accurate. "So that statement was false?" Torres asked. "Yes," Ray replied.

— Brian Schwartz

Bankman-Fried allowed about 1,500 people in the Bahamas to withdraw roughly $100 million 24 hours before the company filed for Chapter 11 bankruptcy protection while other investors were locked out of their accounts, Ray confirmed to lawmakers.

Ray told lawmakers much was still uncertain, but "what we do know is that the liquidation proceeding in the Bahamas was filed effectively hours before the chapter 11 proceeding. During that time period [...] the accounts were unfrozen just in the Bahamas [and over $100 million was released [to] approximately 1,500 customers in the Bahamas."

Court filings from Ray's attorneys at Sullivan & Cromwell provide more context for the brief window that gave Bahamian account holders precedence over other creditors.

Bankman-Fried opened the window after Bahamian regulators pressed him about the crisis at FTX days before its Nov. 11 bankruptcy filing, which the company said on Twitter it was doing at the behest of Bahaman rules and its regulators.

The Securities Commission of The Bahamas shot back two days later, saying it didn't direct, authorize or otherwise suggest that FTX prioritize the withdrawals for Bahamian clients.

— Rohan Goswami

Rep. Emanuel Cleaver, a member of the House Financial Services Committee, slammed a copy of Bankman-Fried's written testimony.

"This testimony is so disrespectful," Rep. Cleaver said. Bankman-Fried was scheduled to testify, but didn't show after Bahamian authorities arrested him Monday night. The fallen CEO planned to tell lawmakers he "f*cked up," according to Forbes magazine, which posted a copy of his written testimony.

The Missouri Democrat quipped that he couldn't even say the next two words as he read the script out loud during the hearing.

Bankman-Fried said FTX's current CEO Ray and his team refused to return credentials Bankman-Fried said he needed to access to answer questions before the committee and of failing to respond to a number of emails.

"Mr. Ray has never responded, nor has he reached out to me to communicate in other ways," the remarks say.

— Chelsey Cox

The Commodity Futures Trading Commission unveiled its own charges against Bankman-Fried as Ray testified about alleged wrongdoing at FTX.

The CFTC's charges say Alameda Research, Bankman-Fried's hedge fund, enjoyed access to as much as $8 billion in customer funds in an account nominally on FTX's books but controlled by and in the name of Alameda.

From the very founding of FTX in 2019, the CFTC alleges that Alameda "accessed and used FTX customer funds for Alameda's own operations and activities, including to fund its trading, investment, and borrowing/lending activities."

The CFTC filing echoes charges that the SEC unveiled earlier Tuesday, which said that Bankman-Fried operated his empire as a fraud "from the start."

— Rohan Goswami and MacKenzie Sigalos

U.S. prosecutors unsealed their indictment accusing Bankman-Fried of widespread fraud, a day after the fallen crypto exchange operator was arrested in the Bahamas on the charges.

The indictment in U.S. District Court in Manhattan charges Bankman-Fried with eight criminal counts: conspiracy to commit wire fraud and securities fraud, individual charges of securities fraud and wire fraud, money laundering, and conspiracy to avoid campaign finance regulations.

Prosecutors allege in the indictment that the former billionaire was engaging in criminal activity that began as far back as 2019 and continued through last month.

Bankman-Fried deliberately and knowingly "agreed with others to defraud customers of FTX.com by misappropriating those customers' deposits and using those deposits to pay expenses and debts of Alameda Research," the indictment alleges.

It also accuses Bankman-Fried of conspiring with others to defraud FTX's lenders "by providing false and misleading information to those lenders regarding Alameda Research's financial condition."

— Rohan Goswami and MacKenzie Sigalos

Rep. Brad Sherman, D-Calif., said Bankman-Fried, was lobbying Congress in order to keep the SEC from regulating the nascent industry.

Bankman-Fried was a "well-known figure" in Congress and "his one purpose was to keep the SEC out of crypto."

The disgraced crypto executive regularly met with lawmakers on Capitol Hill and was a prolific campaign financier, contributing nearly $40 million in publicly disclosed donations toward the 2022 midterm elections. The majority of his contributions toward federal campaigns were directed to Democrats.

Bankman-Fried was recently arrested in the Bahamas. The SEC charged the former FTX executive with orchestrating a "massive, years-long fraud" in which he allegedly diverted billions of dollars of the trading platform's customer funds for "his own personal benefit.

Prosecutors from the Southern District of New York unsealed eight separate charges against Bankman-Fried, including several counts of conspiracy and fraud. They also charged Bankman-Fried with violating campaign finance laws.

— Brian Schwartz

FTX's troubles began "months, if not years" before it filed for bankruptcy, Ray testified.

The crypto exchange had been intermingling its assets with Alameda Research, Bankman-Fried's hedge fund, for a while, he said.

"There was a public distinction" between FTX.com and FTX.us, but in reality user data was amalgamated between the two," Ray testified. The crypto exchange collapsed after it came to light that Alameda had been using FTX customer assets to cover trading losses.

"The owners of the company could really run free-rein" between all of FTX international, FTX US', and Alameda Research's assets, Ray testified.

"We've been able to secure over $1 billion in assets," the newly appointed FTX CEO said, but it could take weeks, even months to secure all of FTX's assets, he said.

— Rohan Goswami

Bankman-Fried recently said in an interview that all of his Republican donations during the 2022 election cycle went to so-called "dark" money groups.

That move allowed him to avoid publicly disclosing which GOP leaning organizations he backed, he noted in a November YouTube interview with crypto blogger Tiffany Fong. These types of "dark" nonprofit groups allow donors to give an unlimited of money, without having to disclose their names.

Bankman-Fried said he gave "about the same amount" to both parties throughout the recent midterm elections. If that's true, Bankman-Fried could have given close to $80 million between Republicans and Democrats during the 2022 election cycle. The now arrested FTX founder gave almost $40 million toward campaigns and political action committees in the 2022 cycle, with most those funds focusing on helping Democrats, according to data from OpenSecrets.

Since that interview, CNBC asked Bankman-Fried over Twitter messages which "dark" money groups he supported and how much he donated to each organization. He never responded to those requests for comment.

An ethics watchdog group has asked the Federal Election Commission to investigate former FTX CEO Sam Bankman-Fried for alleged "serious violations" of election law, citing his admitted contributions of "dark" money to Republican-aligned groups during the 2022 primary season.

— Brian Schwartz

Federal prosecutors on Tuesday accused the disgraced crypto executive, who made nearly $40 million in publicly disclosed political donations in the 2022 election cycle, with violating multiple campaign finance laws.

A newly unsealed indictment in Manhattan federal court says Bankman-Fried and others violated numerous federal campaign finance laws, including giving contributions of at least $25,000 to campaigns and political action committees "in the names of other persons."

The charge, which is included among multiple other criminal counts against the fallen crypto exchange CEO, comes days after a private watchdog group asked the Federal Election Commission to investigate Bankman-Fried for campaign finance violations.

— Brian Schwartz

FTX's new CEO Ray told lawmakers the company used Intuit's QuickBooks bookkeeping software to manage its multibillion dollar portfolio.

"Quickbooks?!" Rep. Ann Wagner, R-Mo., asked.

Ray said the scandal at FTX was in some ways worse than the 2001 failure of energy trading firm Enron, which cost shareholders $74 billion and left 21 executives, auditors and other people convicted of crimes.

"It's unusual in the sense that there's no record-keeping whatsoever [...] employees would communicate invoices and expensing on Slack," he said.

"I don't want to speak to detailed regulations," Ray testified, but "my basic observation is that you need records, you need controls, and you need to segregate people's money."

Ray specializes in recovering assets from bankrupt companies. He's most well-known for his work as chairman of Enron after its collapse. He helped Enron's creditors recover more than $800 million, which he's said was about 52 cents on the dollar.

— Rohan Goswami

Patrick McHenry, R-N.C., the top Republican on the House Financial Services Committee, called Bankman-Fried's arrest "welcome news."

Bankman-Fried was arrested in the Bahamas Monday after the United States District Attorney for the Southern District of New York shared a sealed indictment with Bahamian officials.

"He was scheduled to testify under oath before this committee day," Chairwoman Maxine Waters, D-Calif., said in her opening remarks. "Unfortunately, the timing of this arrest in the eyes of the public the opportunity to answer this issue, that this committee will not stop until we uncovered the full truth."

— Chelsey Cox

Sam Bankman-Fried is in Bahamian custody ahead of an anticipated extradition to the United States, but FTX faces regulatory probes that extend beyond U.S. borders.

Regulators at the Securities Commission of the Bahamas have already begun to unpack the final, chaotic days at FTX with a likely eye towards charging Bankman-Fried.

The Cyprus SEC had suspended FTX's European license just prior to FTX's Chapter 11 bankruptcy protection filing, but has complained that John J. Ray, FTX's new CEO, has stymied efforts at an investigation, the Wall Street Journal previously reported.

In Turkey, regulators have already seized "suspicious" FTX assets with a likely eye to a deeper probe into FTX's operations there. FTX operated at least two subsidiary companies in Turkey.

— Rohan Goswami

FTX's new CEO, John J. Ray, will tell lawmakers about a $5 billion "spending binge" by former FTX executives Sam Bankman-Fried and Ryan Salame in the months before the firm's collapse, according to a copy of his written testimony released by the committee Monday night.

Ray took over as the FTX chief as the crypto empire hurtled toward Chapter 11 bankruptcy protection.

Beyond the multibillion-dollar spending spree, Ray's written testimony confirms that customer assets from FTX were commingled with assets from Alameda Research, Bankman-Fried's hedge fund.

"Many things are unknown at this stage," Ray's testimony reads.

— Rohan Goswami

Securities and Exchange Commission Chairman Gary Gensler didn't mince words in charging Bankman-Fried with running what the agency said was a scheme to defraud investors, saying the crypto trading platform "operated behind a veneer of legitimacy."

"We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto," Gensler said. "The alleged fraud committed by Mr. Bankman-Fried is a clarion call to crypto platforms that they need to come into compliance with our laws."

The one-time crypto billionaire was charged with violating the Securities Act of 1933, which basically prohibits issuers of securities from deceiving investors as well as the Securities Exchange Act of 1934, which regulates securities once they're traded in the open market.

The agency said it's looking into more possible violations as well as other entities and people tied to FTX.

— Dawn Kopecki

U.S. Attorney Damian Williams said the Justice Department plans to unseal its indictment against Bankman-Fried Tuesday morning.

The one-time crypto billionaire was arrested by authorities in the Bahamas after he was reportedly charged by the Southern District of New York with wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy and money laundering.

Neither the Attorney General of the Bahamas nor the Royal Bahamas Police Force would confirm the nature of the charges against Bankman-Fried.

— Dawn Kopecki