CNN — With his vast crypto empire in shambles, Sam Bankman-Fried is preparing to be questioned by US lawmakers demanding answers about how his digital asset exchange, FTX, unraveled, leaving at least a million clients unable to access your funds.
Bankman-Fried tweeted Friday that he was set to appear Tuesday before the House Financial Services Committee, which is investigating the spectacular collapse of the crypto industry titan last month.
The 30-year-old businessman, 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 can say and I won’t be as helpful.” as I would like,” in response to Rep. Maxine Waters, the committee’s Democratic chair. “But since the committee still believes it would be helpful, I am willing to testify on the 13th.”
Also testifying Tuesday will be John Ray, a veteran turnaround expert who has been tasked with guiding FTX through bankruptcy as its new chief executive.
“The scope of the ongoing investigation is enormous,” Ray said in prepared remarks posted Monday.
While the investigation is not complete, Ray said, FTX’s collapse appears to be due to the concentration of power “in the hands of a very small group of extremely inexperienced and unsophisticated people” who implemented virtually no corporate control.
Ray also states as a fact that “FTX.com’s client assets were commingled with Alameda’s trading platform assets.” That’s a key issue for investigators, as FTX and Alameda were, on paper, separate entities.
Bankman-Fried has publicly stated that it never “knowingly” mixed funds.
A representative for Bankman-Fried’s lawyer said the FTX founder would testify remotely from the Bahamas, where the company is based.
The representative declined to comment on whether Bankman-Fried would also testify before a Senate Banking Committee hearing on Wednesday.
Tuesday’s hearing is scheduled to begin at 10 am ET.
Familiar faces in Congress
Speaking before Congress is familiar ground for the crypto-celebrity-turned-pariah, who had cultivated a reputation as the industry’s good boy in Washington. He and other FTX executives made generous political and charitable donations while advocating for legislation that would clarify the regulatory boundaries of the digital asset space.
In FTX’s heyday, Bankman-Fried regularly appeared on congressional panels, wowing lawmakers and pushing for soft regulation of the infant industry. Bankman-Fried himself gave approximately $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, however, it is unlikely to receive the same warm welcome, as lawmakers and lobbyists who sided with FTX are fighting to distance themselves from one of the most shocking corporate implosions in history.
raising the stakes
In the weeks since their companies collapsed, multiple investigations have been launched, including a criminal probe into FTX and its sister hedge fund, Alameda, that could lead to charges against Bankman-Fried, legal experts say. At the same time, SBF has been regularly tweeting and giving interviews to the media, presenting himself as a somewhat clumsy but ultimately well-meaning CEO that he’s gotten on his nerves about.
“I did not knowingly commit fraud,” he told the BBC over the weekend. “I didn’t want any of this to happen. I certainly wasn’t as competent as I thought I was.”
That sentiment echoes remarks he made earlier at the New York Times DealBook summit and in an interview with ABC’s “Good Morning America.”
His testimony before Congress, however, carries additional legal weight.
“SBF is taking a significant risk by testifying before Congress,” said Howard Fisher, a former attorney for the Securities and Exchange Commission. “”Anything SBF says that is contradicted by documentary evidence or other people’s statements will be grounds for questioning its credibility.
Plus, Fischer says, if her testimony before Congress is “substantially impugned” by other evidence, Bankman-Fried “could face charges related to that as well.”
What legislators want to know
Despite SBF’s media tour, he has largely evaded details about how the wheels came off FTX, once privately valued at more than $30 billion. In early November, when a prominent investor publicly announced that he would sell off his FTX holdings, a panic amounted to a run on the bank. FTX faced such a severe liquidity crisis that it was forced to declare bankruptcy less than a week later.
In a tweet last week, Bankman-Fried said he would “shine as much light as I can,” including on what he believes led to the collapse and his own failings as chief executive.
The key questions lawmakers and prosecutors are expected to focus on relate to the potential misuse of client funds.
“All the questions are going to be about the asset mix,” said David Maria, head of litigation and regulatory affairs at crypto exchange Bittrex… “I think there will 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 before Bankman-Fried, can offer more substantive insight into lawmakers’ questions given his access to the company’s financial records and a unique insight into how the business is run, Maria said. .
One of the key questions about FTX stems from a Reuters report last month that Bankman-Fried built a “back door” into FTX’s accounting system, allowing it to alter the company’s financial records without setting off the flags. Accounting reds—as that Reuters Bankman report said—Fried used this “back door” to transfer $10 billion in client funds from FTX to Alameda, the hedge fund, and now at least $1 billion is missing.
Bankman-Fried has denied any knowledge of any such back door. “I don’t even know how to code,” he told cryptocurrency vlogger Tiffany Fong in an interview last month.
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