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December 13, 2022

VIDEO: Pressley Questions FTX Chief on Systemic Failures Leading Up to Collapse of Crypto Exchange

Pressley Calls for Returning Funds and Making Harmed Consumers Whole

Video (YouTube)

WASHINGTON – Today at a House Financial Services Committee hearing, Congresswoman Ayanna Pressley (MA-07) questioned new FTX Chief John J. Ray III about the systemic failures at FTX leading up to the collapse of the crypto exchange, and emphasized the importance of making harmed consumers whole and returning their funds to them.

A full transcript of her exchange with Mr. Ray is available below and the full video is available here.

Transcript: Pressley Questions FTX Chief on Systemic Failures Leading Up to Collapse of Crypto Exchange
House Financial Services Committee
December 13, 2022

REP. PRESSLEY: Thank you, Mr. Vice Chair, and thank you to our Chairwoman for making this hearing an absolute priority.

Due to the collapse of the cryptocurrency exchange FTX, over 1 million people have not been made whole, including consumers in my district, the Massachusetts Seventh.

Now, Mr. Ray in a bankruptcy filing a few weeks ago you stated, “never in my career have I seen such a complete failure of corporate controls, such a complete absence of trustworthy financial information as occurred here.”

So, that we can continue to get a better sight line into this failure, can you elaborate on the internal failures and the inadequate policies that occurred at FTX leading to the collapse?

MR. RAY: You know, it’s virtually unlimited in terms of the lack of controls, no centralized records on banking, no daily reconciliations of crypto assets, silos where there’s no insurance, inadequate insurance, no independent board, no safeguards that limit who controls an asset. So senior management literally could get access to any of the accounts in any of the silos. No separateness between customer money, and other customer money or other assets. It’s virtually unlimited in terms of the lack of controls. And that’s really the point of the unprecedented comment, I’ve just never seen anything like it. In 40 years of doing restructuring work in corporate legal work. It’s just a dearth of information.

REP. PRESSLEY: Thank you very much, Mr. Ray for enumerating that for the purposes of the record, to better understand the depth of the incompetence here. And again, really just egregious, and really criminal. Can you tell us how customer funds were handled at FTX, including the exact amount that FTX misused?

MR. RAY: We don’t have totals today on the losses. I mean, we do know that customer funds have existed effectively in a pool. We’re gonna have to do an accounting and tracing analysis to really determine the number of customers affected. Right now, we have the number of accounts, but again, users had multiple accounts. For example, if they had a different trading position, they may have opened multiple accounts. We know it’s a big number, it’s in the millions on the customer accounts. And we know it’s several billion dollars in losses. Assigning those losses to customer accounts will be our next challenge.

REP. PRESSLEY: I saw one report that was putting it at about 8 billion. In light, what is FTX’s plan to make sure that every single dollar that was misused is returned to the customers. Do you have an estimate of the amount of funds that FTX will actually be able to repay?

MR. RAY: Not at this stage. I mean, the one thing that I want to express to the committee is that, you know, every day we find more assets, we unlock more assets, we find, you know, keys that we can then unlock wallets, and then we assign those to the proper silos.

So, every day we’re more encouraged, but clearly, you know, we anticipate some massive losses here. We’re just too early right now to speculate what that would be. And hopefully, you know, in the coming weeks, we will get a better handle on that and obviously, make more information available to the public.

The one thing about the bankruptcy process, which be comforting to the committee, is that there’s absolute transparency and disclosure and they have there’s reporting in the bankruptcy process. So, everyone will know every step of the way exactly what’s happening in this bankruptcy.

REP. PRESSLEY: Thank you. Without question, this collapse has been devastating to people across the globe, my constituents in the Mass. Seventh included.

Which is why it really is essential that we understand the anatomy of this collapse so that we can not only ensure that they are made whole, that we are mitigating the damage caused here and maximizing the value that is returned to customers, but that we ensure with stringent regulations and procedures in place, that this does not happen in the future.

Thank you, Mr. Vice Chair, and I yield back.