NASSAU, BAHAMAS — FTX CEO John Ray III in a congressional hearing into the company’s collapse yesterday slammed The Bahamas’ company liquidation process as lacking transparency, claiming that the ‘pushback’ being received from the Bahamian government and regulators was ‘extraordinary’ and ‘irregular.’
Ray was addressing a House Financial Services Committee hearing into the collapse of the crypto exchange.
He said that some digital assets were removed from FTX’s Bahamian platform by Bahamian authorities and some were removed in a hack. The Securities Commission has repeatedly defended its decision to transfer all digital assets of FTX into digital wallets under its control for the benefit of clients and creditors of FTX Digital Markets.
Ray asserted yesterday however that the regulator’s actions in his view were a violation of the automatic stay in the bankruptcy proceedings.
According to Ray, FTX’s Bahamian-based accounts were unfrozen ahead of the company’s Chapter 11 filings and over $100 million was released to 1,500 customers.
“Then the door was closed about the time of our Chapter 11 filing and there were communications between Bankman-Fried and the Bahamian government specifically related to this leakage of assets.”
Bankman-Fried who had been scheduled to appear at yesterday’s hearing prior to his arrest Monday evening admitted in a recent interview with citizen journalist Tiffany Fong that he temporarily reopened withdrawals just for Bahamian residents after pausing the platform.
“I gave (them) a one-day heads up that we were going to do it,” he said.
“They didn’t say, yes or no. They didn’t respond, and then we did it. The reason I did it was it was critical to the exchange being able to have a future,” said Bankman-Fried previously stated.
“Clearly there were assets moved out. It was a hack and at the behest of Bahamian authorities. It wasn’t a request they just took it. They were aided by former employees of FTX, Mr Wang and Mr Fried,” Ray said.
Yesterday, Ray said: “Unlike the Chapter II process there is no transparency in the process of the Bahamians. We have repeatedly asked them for clarity about what they have been doing. We’ve been shut down on that.”
He added: “They put out statements that it was in the interest of Bahamian creditors but in our view, it violated the automatic stay in bankruptcy. They have liquidation proceedings relative to FTX Digital Markets. That is their proceedings. We think the Chapter 11 process is the only open and transparent process that gives visibility to customers of what happened when they are going to get their money and how they are going to get their money.
“The process in the Bahamian islands is not a transparent process. We have opened the ability up to share everything we have with the Bahamian government similar to how we work with other liquidators around the world, not only in this case but in other cases. It’s meant to be a very cooperative situation. The push back we have gotten is extraordinary in the context of bankruptcy. It raises questions. It seems irregular to me.”
Ray revealed yesterday that he has so far been able to secure $1 billion in crypto assets. According to Ray, the FTX group went on a “spending binge” between 2021 and 2022 during which $5 billion was spent on a myriad of businesses and investments, many of which may only be worth a fraction of what was paid for them.
Ray also noted that loans and other payments in excess of $1.5 billion.
“The operations of the FTX group were not segregated. It was really operated as one company. There is no distinction virtually between the operations of the company and who controlled those operations,” Ray said.
Ray lamented the complete lack of proper record-keeping.
“I’ve never seen an utter lack of record keeping; absolutely no internal controls whatsoever. This case is made difficult in that context when you’re dealing with technology,” he said.
Drawing the distinction between the over 100 FTX entities, Ray explained that the entities have been placed into four silos; FTX US for US crypto investors, FTX.com for non-US crypto investors, Alameda, and a fourth entity purely for investments, all of which were owned or controlled by Sam Bankman-Fried.
Ray said that there were 2.7 million users registered on the US silo and 7.6 on the FTX.com silo, numbers he noted are likely overstated, with some users holding multiple accounts.
Ray noted that the crypto assets of FTX and Alameda were all housed in the same Amazon Web Services database.