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House and Senate lawmakers are set to hold back-to-back hearings this week on the collapse of FTX and the role of Sam Bankman-Fried, the founder and former CEO of the bankrupt cryptocurrency firm.
Members of the House Financial Services Committee and Senate Banking Committee are set to launch their investigations into how FTX fell apart and how Bankman-Fried led a company once valued at $32 billion into ruin. While they’ll have plenty of pointed questions for Bankman-Fried, Congress is also fuming at federal regulators and pondering its own role in the crisis.
“The FTX collapse has the potential to be Madoffesque in scope and size of dollars that have been lost or misappropriated,” said Mark A. Kornfeld, an attorney specializing in financial and investment law at Buchanan Ingersoll & Rooney, in a Friday interview, referring to the $64.8 billion Ponzi scheme perpetrated by Bernard Madoff.
“You are going to see lots and lots of different lanes being tread,” he said.
Here are the five big questions surrounding the collapse of FTX.How much did Bankman-Fried know before FTX went bankrupt?
FTX collapsed last month after a series of reports about the firm’s shoddy financial health triggered panic among its millions of users. Over a three-day span, FTX customers attempted to withdraw billions of dollars of their own funds held on the company’s platforms, but FTX lacked enough actual U.S. dollars to reimburse many users.
Bankman-Fried has admitted to losing track of how much money FTX owed its customers and other firms, along with overestimating how much money it had to back up client funds. He also acknowledged that FTX used customer money to fund bets placed by his investment firm, Alameda Research, despite FTX explicitly saying in its terms of services it would not do so.
How long Bankman-Fried knew about these issues before the chaotic week FTX imploded could be key to determining if the company could have been saved, whether Bankman-Fried was truly blindsided by its collapse and if the company’s senior executives should have been able to anticipate the bankruptcy.
“There are still significant unanswered questions about how client funds were misappropriated, how clients were blocked from withdrawing their own money, and how you orchestrated a cover up,” Sen. Sherrod Brown (D-Ohio), chairman of the Senate Banking Committee, wrote in a Wednesday letter asking Bankman-Fried to testify.
