John Ray III, the new CEO of bankrupt cryptocurrency exchange FTX Group, said a complete lack of record keeping and internal control at FTX made it one of the worst cases he has handled in his 20-plus-year career of corporate restructuring.
Ray testified before the U.S. House of Representatives Committee on Financial Services today (Dec. 13) in a hearing titled “Investigating the Collapse of FTX, Part I.” His predecessor, FTX’s founder Sam Bankman-Fried, was also scheduled to testify today, but he became unavailable after being arrested in the Bahamas by authorities late Dec. 12.
Ray, a corporate lawyer and turnaround expert, is known for overseeing the $23 billion bankruptcy proceeding of energy firm Enron Corp in 2001.
Ray told House lawmakers he was surprised by the scale of commingled funds and the absence of documentation at FTX upon taking over the company four weeks ago.
“I’ve done probably a dozen large-scale bankruptcies, including Enron. The FTX Group is unusual—in a sense that literally there’s no record keeping whatsoever,” Ray told Rep. Ann Wagner, a Republican from Missouri.
FTX relied on Slack and Quickbooks to manage accounts
Ray said his ongoing investigation found that FTX employees communicated invoices and expenses on Slack, a workplace messaging app, and used QuickBooks, an accounting software designed for small businesses, to document transactions.
“Nothing against QuickBooks. It’s a very nice tool but just not for a multibillion-dollar company,” Ray said.
He added FTX never had an independent board, which is “highly usual for a company of this size.” At its peak, FTX Group was valued at $32 billion.
Ray was appointed as FTX’s new CEO on Nov. 11, the day the company filed for Chapter 11 bankruptcy protection in the U.S. He is tasked with leading FTX through its bankruptcy process and recover as much loss as possible for its customers. In its bankruptcy filing, FTX said it owes money to more than a million creditors.
Ray said he is investigating four main branches of FTX Group: two cryptocurrency exchanges (one for U.S. traders and the other for international customers), Alameda Research, and a separate investment unit.
At today’s hearing, Ray refuted Bankman-Fried’s earlier claims that he didn’t make decisions at Alameda Research, an investment subsidiary under FTX Group.
“I don’t know the basis of his comment. I know he owns 90 percent of Alameda,” Ray said, answering questions from Rep. Patrick McHenry, a Republican from North Carolina.
Ray’s investigation shows data of FTX cryptocurrency exchanges and Alameda Research are stored in one Amazon Web Services system. He said there is no distinction in governance between FTX exchanges and Alameda.