US lawmakers are going to put Sam Bankman-Fried to the test over FTX’s collapse

New York

With his massive crypto empire in shambles, Sam Bankman-Fried is preparing to be grilled by US lawmakers demanding answers about how his digital asset exchange, FTX, was unravelled, leaving at least a million customers unable to access their money.

Bankman fried tweeted Friday that he was prepared to appear before the House Financial Services Committee on Tuesday, which is investigating the spectacular collapse of the crypto industry titan last month.

The 30-year-old entrepreneur, who resigned as CEO at the same time as FTX and dozens of affiliates filed for bankruptcy, said there would be a limit to what I’ll be able to say, and I won’t be too helpful. as I would like,” in response to Rep. Maxine Waters, the Democratic chair of the committee. “But since the committee still thinks it would be helpful, I am willing to testify on the 13th.”

Also testifying on Tuesday is John Ray, a seasoned restructuring expert tasked with guiding FTX through bankruptcy as its new CEO.

“The scope of the ongoing investigation is vast,” Ray said in prepared remarks released Monday.

While the investigation is not yet complete, Ray said, FTX’s collapse appears to stem from the concentration of power “in the hands of a very small group of very inexperienced and artless individuals” who failed to control virtually all of the controls of the system. company to perform.

Ray also states as a fact that “customer assets from were mixed with assets from the Alameda trading platform.” That’s an important point for researchers, since FTX and Alameda were separate entities on paper.

Bankman-Fried has publicly stated that he has never “knowingly” mixed funds.

A representative for Bankman-Fried’s lawyer said the founder of FTX would testify remotely from the Bahamas, where the company was based. Tuesday’s hearing begins at 10 a.m. ET.

However, Bankman-Fried has declined to testify before the Senate Banking Committee.

“We have offered Sam Bankman-Fried two different testimonial dates… and are willing to allow for virtual testimonials. He has declined in an unprecedented abdication of responsibility,” Senators Sherrod Brown and Pat Toomey, chairman and senior member of the Senate Banking, Housing and Urban Affairs Committee, said in a statement. “Since Bankman-Fried’s counsel has stated that he is not prepared to accept a subpoena, we will continue our efforts to have him appear before the committee. He owes the American people an explanation.”

Speaking before Congress is familiar territory for the crypto celebrity turned pariah, who had earned a reputation as the industry Good Guy in Washington. He and other FTX executives have made lavish political and charitable donations while advocating for legislation that would clarify the regulatory boundaries of the digital asset space.

In FTX’s heyday, Bankman-Fried regularly appeared on congressional panels, charming lawmakers and pushing for light regulation of the nascent industry. Bankman-Fried himself gave about $40 million to campaigns and political action committees during the 2022 midterm election cycle, largely in support of Democrats, according to Federal Election Commission data.

This time, however, he probably won’t receive the same warm welcome as legislators and lobby groups that had joined FTX try to distance themselves from one of the most shocking corporate implosions in history.

Multiple investigations have been launched in the weeks since the collapse of his businesses, including a criminal investigation into FTX and its sister hedge fund, Alameda, that could lead to charges against Bankman-Fried, legal experts say. At the same time, SBF regularly tweeted and gave media interviews, portraying himself as a somewhat bumbling but ultimately well-meaning CEO stepping on his skis.

“I did not knowingly commit fraud,” he told the BBC over the weekend. “I didn’t want all of this to happen. I certainly wasn’t as capable as I thought I was.”

That sentiment mirrors statements he previously made at the New York Times DealBook Summit and in an interview with ABC’s “Good Morning America.”

However, his testimony before Congress carries additional legal weight.

“SBF is putting itself at significant risk by testifying before Congress,” said Howard Fischer, a former attorney for the Securities and Exchange Commission. “Anything SBF says that is contradicted by documentary evidence or other people’s statements will be a reason to question its credibility.

Further, Fischer says, if his testimony before Congress is “substantially rebutted” by other evidence, Bankman-Fried “could also be charged in connection therewith.”

Despite SBF’s media tour, he largely evades details about how the wheels came from FTX, once privately valued at more than $30 billion. In early November, when a prominent investor publicly announced that he would be liquidating his holdings of FTX, it sparked panic that amounted to a run in the bank. FTX faced a liquidity crisis so severe that it was forced to file for bankruptcy less than a week later.

In a tweet last week, Bankman-Fried said he would “shed as much light as possible,” including on what he believes led to the crash and his own shortcomings as CEO.

Key questions that lawmakers and prosecutors are expected to focus on relate to the potential misuse of customer funds.

“The questions are all about mixing assets,” said David Maria, head of litigation and regulatory affairs at the crypto exchange Bittrex… “I think there will be a lot of, ‘I don’t remember, I don’t know, I don’t have access to those files.’ “

Ray, the new CEO who will testify before Bankman-Fried, may be able to offer more substantive insights into lawmakers’ questions given his access to the company’s financials and unique insight into how the company was run, Maria said.

One of the top questions about FTX stems from a Reuters report last month that Bankman-Fried built a “back door” into FTX’s accounting system, allowing him to change the company’s financials without accounting red flags. as that Reuters report said Bankman-Fried used this “back door” to transfer $10 billion in FTX client funds to Alameda, the hedge fund, and at least $1 billion is now missing.

Bankman-Fried has denied knowing anything about such a back door. “I don’t even know how to code,” he told cryptocurrency vlogger Tiffany Fong in an interview last month.

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