FTX CEO to detail 'unacceptable management practices' in congressional testimony

On Tuesday, FTX CEO John Ray will tell lawmakers that the bankrupt cryptocurrency exchange had "unacceptable management practices" including the commingling of assets and lack of internal controls, according to prepared remarks published on Monday by the US House Financial Services Committee.

FTX filed for US bankruptcy protection last month, and its founder Sam Bankman-Fried resigned as chief executive. Both Ray and Bankman-Fried will testify before the committee on Tuesday at 10am ET (15.00 GMT). Earlier on Monday, Bankman-Fried said that he would appear remotely the hearing.

In his prepared remarks, Ray said that the FTX collapse appeared to stem from the concentration of control "in the hands of a very small group of grossly-inexperienced and unsophisticated individuals".

"Never in my career have I seen such an utter failure of corporate controls at every level of an organisation, from the lack of financial statements to a complete failure of any internal controls or governance whatsoever."

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FTX filed for bankruptcy on November 11 after it struggled to raise money to stave off collapse, as traders rushed to withdraw $6 billion from the platform in just 72 hours.

In recent weeks, US authorities sought information from investors and potential investors in FTX, two sources with knowledge of the requests told Reuters. Prosecutors and regulators have not charged Bankman-Fried with any crime.

Tuesday's hearing will be the first time Bankman-Fried and Ray appear publicly before US lawmakers.

Ray added that he had hired a new chief financial officer, a head of human resources and administration, and a head of information technology. He also appointed a board of directors, now chaired by former US Attorney Joseph Farnan.

Since taking over as CEO, Ray says he has established that customer assets at FTX are commingled with those of Alameda Research — Bankman-Fried's crypto trading firm that maintained close ties with his exchange. Client funds were used to engage in margin trading, which exposed customers to massive losses, Ray said.

Ray also addressed why FTX US was included in the bankruptcy filing — which Bankman-Fried had expressed confusion about in media interviews — claiming that the company's US entity is financially sound.

Such a step was necessary to avoid a "run on the bank", and to allow FTX's new leadership to identify and protect its assets.

"Since the time of the filing, I have become even more confident this was the correct decision, as the books and records issues at FTX US and the many relationships between FTX US and the other FTX Group companies become clearer," he said.

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