FTX’s CEO says the company is engaged in “old-fashioned embezzlement” under the SBF

FTX’s bankruptcy-era CEO, John J. Ray III, to Shepherd Collapsing Cryptocurrency Exchange Through Chapter 11 ReorganizationOn Tuesday, the company’s founder and former CEO, Sam Bankman-Fried, made several misstatements about his companies’ financials.

Ray, who oversaw the infamous Enron scam, called FTX’s actions “old-fashioned embezzlement.”

“This is just taking money from clients and using it for your own purpose. It’s not complicated at all,” said Ray, explaining that what might be complicated about the scheme is hiding it in plain sight.

Ray’s testimony may also have shed light on the theories behind the Justice Department’s charges against Bankman-Fried, who was indicted on eight counts of wire fraud, securities fraud and conspiracy on Tuesday.

The agency’s criminal charges, which allege Bankman-Fried misappropriated clients’ funds, require it to prove beyond a reasonable doubt that Bankman-Fried knew and intended to lie to clients or lenders.

John J. Ray III, CEO of FTX Group, listens to a question, at a US House of Representatives Financial Services Committee hearing investigating the collapse of now-bankrupt cryptocurrency exchange FTX following the arrest of FTX founder Sam Bankman-Fred, on Capitol Hill in Washington, US December 13, 2022. (Reuters) / Elisabeth Frantz

The FTX chair’s testimony came before the US House of Representatives Financial Services Committee, where Bankman-Fried was also scheduled to testify via video conference. However, the opportunity for the public to hear the testimony of the embattled founder is denied after Bahamas authorities arrested him on Monday night.

Bahamas authorities detained Bankman Fried at the request of the US Department of Justice Monday night, based on the indictment originally filed under seal.

In the indictment, released Tuesday, the Justice Department charges Bankman-Fried with fraud and conspiracy to commit wire fraud against FTX clients and lenders, conspiracy to commit commodity and securities fraud, conspiracy to violate money laundering laws, and conspiracy to defraud. The United States government through violations of campaign finance laws.

In separate civil lawsuits filed Tuesday, the U.S. Securities and Exchange Commission and the U.S. Commodity Futures and Trading Commission, respectively, alleged Bankman-Fried’s violation of the securities laws, the Commodity Exchange Act, and agency regulations.

Asked if there was any way Bankman-Fried and FTX senior managers did not know that affiliated entities had mixed with client funds, allowing Bankman-Fried Alameda Research’s crypto hedge fund unlimited access to FTX clients’ accounts, he said. Ray III, “No.”

In an interview at the New York Times Deal Writers Summit, Bankman-Fried said he “didn’t mix it up on purpose [customer] money.” He added that he “never tried to defraud anyone,” that he “wasn’t” running Alameda,” and “didn’t know what was going on.”

Ray was also asked about allegations in Bankman-Fried’s leaked hearing notes that FTX was solvent, but due to a bank run the company caused when Binance walked away from a planned investment in FTX, and that US FTX is still able to. Pay off all debts. from its clients. Pancake fried too He tweeted the claim On November 10, the day before the exchange was declared bankrupt.

Representative Georgia Loudermilk asked Ray: “Given the evidence you’ve gathered, is there any degree of truth to this allegation.”

“We still have a loophole in the US, so as we sit here today it’s not solvent. It’s just inaccurate. And I’m not sure how he knows that, quite frankly. Ray said.

“Before that episode, do you think FTX was solvent?” The Ohio Rep. asked Gonzalez about Binance’s change of heart. Ray replied, “No.”

Missouri Representative Wagner asked Ray if the transfer of FTX funds to Alameda was done in error, given that Bankman-Fried has publicly apologized for missteps in his companies’ leadership.

“I don’t find any such statements credible,” said Ray III.

Rep. Wagner went on to say that FTX’s international trading platform, FTX.com, presents itself as having a sophisticated risk management system commensurate with the scale of its operations.

“I can see it’s completely wrong. There was absolutely no complication,” said Ray III. “There was an absence of any management.”

Alexis Keenan is Legal Correspondent for Yahoo Finance. Follow Alexis on Twitter @tweet.

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