Chairman Krishnamoorthi Presses FTX Leadership for Answers on Company’s Collapse and Full Scope of Financial Harm to Customers
Washington, D.C. (Nov. 18, 2022)— Today, Rep. Raja Krishnamoorthi, Chairman of the Subcommittee on Economic and Consumer Policy, sent a letter to the Founder and former Chief Executive Officer of FTX Sam Bankman-Fried and current Chief Executive Officer of FTX John R. Ray III, pressing for more information on FTX’s collapse and bankruptcy filing and the full scope of harm inflicted upon its investors. The Chairman also pressed FTX to fully comply with the Committee’s August 30, 2022, request for documents as part of its ongoing investigation into what crypto exchanges and federal agencies are doing—and should be doing—to protect consumers and bringing stability to the industry.
“I am extremely troubled by recent news surrounding the collapse of FTX Trading Ltd. (FTX), including its affiliated entity FTX US, and the potentially significant harm that FTX’s bankruptcy will cause to American consumers and investors. To better understand these issues, the Subcommittee on Economic and Consumer Policy is seeking detailed information on the significant liquidity issues faced by FTX, the company’s abrupt decision to declare bankruptcy, and the potential impact of these actions on customers who used your exchange,” wrote Chairman Krishnamoorthi.
“In a recent court filing in the Chapter 11 bankruptcy proceeding, Mr. Ray—who has supervised historic financial restructurings in cases involving criminal malfeasance—called the situation facing FTX ‘unprecedented,’ stating: ‘Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.’ FTX investors and the American people demand answers,” Chairman Krishnamoorthi continued.
On November 6, 2022, reports began circulating that FTX was facing significant liquidity concerns and that consumers would likely be affected. FTX reportedly loaned roughly $10 billion in customer funds to its affiliated crypto trading company, Alameda Research Ltd., which in turn used the borrowed funds to make “risky bets.” In response to these reports, FTX customers withdrew approximately $5 billion from the exchange—the exchange’s largest ever single-day withdrawal.
On November 8, despite a public declaration by Mr. Bankman-Fried that FTX had enough assets to cover clients’ holdings, FTX paused customer withdrawals. On the same day, Mr. Bankman-Fried announced that he had a struck a deal with rival cryptocurrency exchange Binance to sell FTX. On November 9, Binance announced that it was pulling out of the deal. Despite Mr. Bankman-Fried’s contemporaneous proclamations that affiliate FTX US was unaffected, the Subcommittee was informed that the company’s balance sheet confirmed that assets held and assets reported were not reconcilable.
On November 11, FTX announced that FTX, FTX US, Alameda Research, and approximately 130 other affiliated entities were declaring Chapter 11 bankruptcy and that Mr. Bankman-Fried resigned as CEO. Since then, new reporting has emerged suggesting that Mr. Bankman-Fried implemented a custom-built “backdoor” in FTX’s book-keeping systems so that he could move money without triggering internal compliance or accounting red flags at FTX. Additionally, based on its review of an internal balance sheet, new public reporting revealed that FTX held only $900 million in liquid assets despite liabilities of $9 billion the day before the exchange collapsed.
Click here to read today’s letter.