It’s a short witness list for the House Financial Services Committee’s FTX hearing Tuesday (Dec. 13).
The title of the hearing, “Investigating the Collapse of FTX, Part 1,” says it all.
The witness list got even shorter late Monday as FTX founder and former CEO Sam Bankman-Fried was arrested in the Bahamas. It’s likely he won’t be at Tuesday’s hearing.
It’s now been a full month since FTX filed for bankruptcy, simultaneously pulling the rug out from under the popular perceptions that it was the cutting edge of crypto’s future as well as a place where investors could expect to get their money back.
There was to be two panels. The first will hear testimony from John J. Ray III, the freshly installed CEO of FTX Group. Ray, who cut his teeth and made his reputation overseeing the Enron bankruptcy, is commonly regarded as one of the more competent restructuring lawyers working today.
The second panel was slated to hear testimony from Bankman-Fried (SBF), the disgraced founder of FTX group. SBF’s tenure saw the exchange he founded and ran crumble into nothing under his leadership, wiping out billions of dollars of customer funds and sending knock-on tremors throughout the entire crypto industry, as well as evaporating SBF’s own net worth from tens of billions to reportedly just $100,000.
Bankman-Fried’s arrest on Monday (Dec. 12) has made the second panel unlikely.
Rep. Maxine Waters, chairwoman of the House Financial Services Committee, expressed disappointment over the timing of the arrest.
“The public has been waiting eagerly to get these answers under oath before Congress, and the timing of this arrest denies the public this opportunity,” Waters said in a Monday statement emailed to PYMNTS. “While I am disappointed that we will not be able to hear from Mr. Bankman-Fried tomorrow, we remain committed to getting to the bottom of what happened, and the Committee looks forward to beginning our investigation by hearing from Mr. John Ray III tomorrow.”
Ray has previously said the situation with FTX is even worse than Enron’s was, with even less money to recover. He has made clear his view on the “unprecedented” failure of controls at the cryptocurrency exchange, which at one point occupied an enviable position atop the industry.
SBF has been similarly self-critical as he embarked on a media blitz telling his truth about what happened.
Court filings from the bankruptcy proceedings show over 1 million creditors for FTX, including many U.S.-based customers. The insolvent exchange is reported to have between $10 billion and $50 billion in liabilities.
Mea Culpa
FTX was once one of the biggest crypto exchanges in the world. It crumbled in just a matter of days after reports surfaced last month that the platform was commingling funds with its affiliated trading arm, the hedge fund Alameda Research.
SBF continues to claim he did not “knowingly commingle funds,” and has repeatedly blamed the failure on “a lack of oversight” and “pretty big mistakes I’m embarrassed to have made.”
Still, the House panel will likely look for further insight after the FTX founder appeared to have admitted to commingling funds during a recorded YouTube interview with “investigative crypto journalist” Coffeezilla, a conversation that has since garnered widespread mainstream coverage.
A separate conversation in which SBF invited the BBC to his Bahama apartment for an interview where and said he hopes to start a new business in order to make enough money to pay back FTX’s customers, will also likely garner follow-up from lawmakers in Washington, as will comments that claim he isn’t hiding any assets.
Notably, SBF still considers himself to be a good businessman and has been increasingly deflecting blame at Alameda Research, and its CEO Caroline Ellison, for FTX’s collapse.
Lawyers on Parade
For her part, Ellison has largely remained out of the spotlight and has reportedly tapped a former Securities and Exchange Commission (SEC) enforcement division official, Stephanie Avakian, to represent her as she deals with a probe by U.S. attorneys for the Southern District of New York.
After being dropped as a client by white-shoe firm Paul Weiss, SBF has now retained attorney Mark S. Cohen, who most recently represented convicted sex trafficker Ghislaine Maxwell.
How SBF — with a purported net with of $100,000 — plans to pay for his defense, given the scope of liabilities and potential charges he may face, is unknown.
Firms that worked with FTX have been asked to voluntarily give information to U.S. authorities, and prosecutors are reportedly examining how FTX transferred funds as they assemble the beginnings of what might evolve into a case for fraud.
SBF presently faces class-action suits in both Florida and California federal courts, with the California court filing claiming FTX to be “one of the great frauds in history.”
U.S. federal prosecutors in Manhattan are also investigating whether SBF and FTX illegally manipulated the crypto market and played a role in the collapse of stablecoin Terra and its affiliated Luna token, as reported by The New York Times last week (Dec. 7).
The founder of Terra and Luna, Do Kwon, is currently on the run after South Korean officials accused him of breaching capital markets law and issued an arrest warrant, with Interpol issuing a “red notice” for the crypto founder.
While there is no telling what the future holds for SBF, much will depend on what happens at the hearing.
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