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The first House hearing on the collapse of FTX didn’t have the company’s disgraced founder and former CEO, Sam Bankman-Fried, who was arrested on the eve of his highly anticipated testimony. But lawmakers still drew crucial revelations about the company’s demise from John J. Ray III, a veteran of corporate bankruptcies tapped to clean up the mess left by Bankman-Fried.
Ray, who has shepherded Enron and other high-profile companies through bankruptcy, laid out the stunning lack of oversight, experience and scruples that led to FTX’s demise. He also explained how hard it would be to make customers whole and how Bankman-Fried’s lengthy apologies were simply a cover for “old-fashioned embezzlement.”FTX collapse was Enron-like in scale but not sophistication
Ray and lawmakers frequently compared the demise of FTX to that of Enron, the Texas energy company that collapsed in 2001 and caused $11 billion in losses after years of inflating and lying about its financial holdings. While Ray said he’s unsure of FTX’s total losses, he estimated the company has already lost $8 billion of customer money.
The big difference, Ray said, was how conspicuously FTX leaders were ripping off customers and mismanaging money.
“Enron was really a different company. Crimes that were committed there were highly orchestrated financial machinations by highly sophisticated people to keep transactions off balance sheets,” Ray said.
“This is really just old-fashioned embezzlement. This is just taking money from customers and using it for your own purpose,” Ray continued. “Sophisticated, perhaps, in the way they were able to sort of hide it from people, frankly, right in front of their eyes.”We don’t know how much money FTX lost or has
FTX’s lack of adequate record-keeping helped lay the groundwork for its collapse, Ray said, and has made it incredibly difficult to figure out the company’s total assets and outstanding debts.
“Even in the most failed companies, you have a fair roadmap of what happened. We’re dealing with literally a paperless bankruptcy in terms of how they created this company,” Ray said, calling the lack of documentation “unprecedented.”
FTX did not have a formal accounting department, Ray explained, despite the billions of dollars in customer money it was responsible for protecting. He added that FTX leaders used Slack, an online messaging system, to handle invoices and QuickBooks, an online bookkeeping program popular among small-business owners, to handle its assets.
“Nothing against QuickBooks — very nice tool — just not for a multibillion-dollar company,” Ray said.
