With his vast crypto empire in ruins, Sam Bankman-Fried is preparing to be grilled by US lawmakers who are demanding answers about how his digital asset exchange, FTX, came unraveled, leaving at least a million customers unable to access their funds.
Bankman-Fried tweeted Friday that he was willing to appear Tuesday before the House Financial Services Committee, which is investigating the crypto-industry titan’s spectacular collapse last month.
The 30-year-old entrepreneur, who resigned as CEO at the same time FTX and dozens of affiliated companies filed for bankruptcy, said there would be a “limit to what I will be able to say, and I won’t be as helpful as I’d like,” in response to Rep. Maxine Waters, the Democratic chairwoman of the committee. “But as the committee still thinks it would be useful, I am willing to testify on the 13th.”
Also testifying Tuesday will be John Ray, a veteran restructuring expert who’s been tasked with shepherding FTX through bankruptcy as its new chief executive.
“The scope of the investigation underway is enormous,” Ray said in prepared remarks released Monday.
While the probe isn’t completed, Ray said, FTX’s collapse appears to stem from the concentration of power “in the hands of a very small group of grossly inexperienced and unsophisticated individuals” who failed to implement virtually any corporate controls.
Ray also states as fact that “customer assets from FTX.com were commingled with assets from the Alameda trading platform.” That’s a key issue for investigators, as FTX and Alameda were, on paper, separate entities.
Bankman-Fried has publicly stated that he never “knowingly” commingled funds.
A representative for Bankman-Fried’s lawyer said the FTX founder would testify remotely from the Bahamas, where the company was based. Tuesday’s hearing is set to begin at 10 a.m. ET.
Bankman-Fried, however, has refused to testify before the Senate Banking Committee.
“We have offered Sam Bankman-Fried two different dates for providing testimony… and are willing to accommodate virtual testimony. He has declined in an unprecedented abdication of accountability,” said Senators Sherrod Brown and Pat Toomey, chairman and ranking member of the Senate Banking, Housing, and Urban Affairs Committee, in a statement. “Given that Bankman-Fried’s counsel has stated they are unwilling to accept service of a subpoena, we will continue to work to have him appear before the Committee. He owes the American people an explanation.”
Familiar faces in Congress
Speaking to Congress is familiar terrain for the crypto celebrity-turned-pariah, who had cultivated a reputation as the industry Good Guy in Washington. He and other FTX executives made lavish political and charitable donations while advocating for legislation that would clarify the regulatory bounds of the digital asset space.
In FTX’s heyday, Bankman-Fried regularly appeared on congressional panels, charming lawmakers and pushing for light-touch regulation of the nascent industry. Bankman-Fried himself gave roughly $40 million to campaigns and political action committees, largely backing Democrats, during the 2022 midterm election cycle, according to Federal Election Commission records.
This time around, though, he’s unlikely to get the same warm welcome, as lawmakers and lobbying groups who’d aligned with FTX are scrambling to distance themselves from one of the most shocking corporate implosions in history.
Raising the stakes
In the weeks since his companies collapsed, multiple investigations, including a criminal probe into FTX and its sister hedge fund, Alameda, have begun that could lead to charges against Bankman-Fried, legal experts say. At the same time, SBF has been regularly tweeting and granting interviews with the media, casting himself as a somewhat bumbling but ultimately well-meaning chief executive who got out over his skis.
“I didn’t knowingly commit fraud,” he told the BBC over the weekend. “I didn’t want any of this to happen. I was certainly not nearly as competent as I thought I was.”
That sentiment echoes statements he previously made at the New York Times’ DealBook Summit and in an interview with ABC’s “Good Morning America.”
His testimony to Congress, however, carries additional legal weight.
“SBF is putting himself at significant risk by testifying before Congress,” said Howard Fischer, a former Securities and Exchange Commission lawyer. “”Anything SBF says that is contradicted by either documentary evidence or the statements of other people will be grounds to cast doubt on his credibility.
Further, Fischer says, if his testimony before Congress is “substantially impugned” by other evidence, Bankman-Fried “might also face charges relating to that.”
What lawmakers want to know
Despite SBF’s media tour, he’s largely evaded specifics around how the wheels came off FTX, once privately valued at more than $30 billion. In early November, when a prominent investor publicly announced he would be liquidating his holdings of FTX, it sparked a panic that amounted to a run on the bank. FTX faced a liquidity crunch so severe it was forced to file for bankruptcy less than a week later.
In a tweet last week, Bankman-Fried said he would “shed what light I can,” including on what he thinks led to the crash and his own failings 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 going to be about co-mingling of assets,” said David Maria, head of litigation and regulatory affairs at the crypto exchange Bittrex … “I think there’s gonna 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 is scheduled to testify ahead of Bankman-Fried, may be able to offer more substantive insights into lawmakers’ questions given his access to the company’s financial records and unique insight into how it the business was run, Maria said.
One of the key questions about FTX stems from a Reuters report last month that says Bankman-Fried built a “backdoor” into FTX’s accounting system, allowing him to alter the company’s financial records without tripping accounting red flags, as That Reuters report said Bankman-Fried used this “backdoor” to transfer $10 billion in FTX customer funds to Alameda, the hedge fund, and at least $1 billion is now missing.
Bankman-Fried has denied knowledge of any such backdoor. “I don’t even know how to code,” he told cryptocurrency vlogger Tiffany Fong in an interview last month.