New FTX CEO testifies in front of Congress amid SBF’s arrest

Yahoo Finance federal correspondent Jennifer Schonberger details new FTX CEO John J. Ray III's testimony in front of Congress, in which he explained the crypto exchange's downfall.

Video transcript

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- We want to stick with this story and get to the latest inside the Beltway because the House Financial Services Committee holding a hearing today probing the collapse of FTX. It was a hearing Sam Bankman-Fried was supposed to testify at, which, obviously, did not happen. Jennifer Schonberger following this for us. And Jen, no shortage of headlines coming from this hearing.

JENNIFER SCHONBERGER: Good afternoon, Seana. In a four-hour hearing, lawmakers on the House Financial Services Committee went on a fact-finding mission questioning the current chief executive of FTX, John J. Ray, about what caused the collapse of FTX, while its founder, Sam Bankman-Fried, was unable to appear before the committee because he was arrested on criminal charges Monday night. Ray, who was brought in to unwind FTX and who unwound Enron, said FTX was one of the worst cases ever when it came to record keeping, calling it "a paperless bankruptcy that's made it hard to track assets."

JOHN J. RAY: The FTX Group is unusual in the sense that I've done probably a dozen large-scale bankruptcies over my career, including Enron, of course. Every one of those entities had some financial problem or another. They have some characteristics that are in common.

This one is unusual. And it's unusual in the sense that literally there's no record keeping whatsoever. It's the absence of record keeping. Employees would communicate about invoicing and expenses on Slack, which is essentially a way of communicating for chat rooms. They used QuickBooks, a multibillion-dollar company using QuickBooks.

- QuickBooks?

JOHN J. RAY: QuickBooks. Nothing against QuickBooks, very nice tool, just not for a multibillion-dollar company.

JENNIFER SCHONBERGER: Ray called FTX's demise an "old-fashioned embezzlement, taking money from customers and using it for your own purpose." Ray said the operations of FTX were not segregated and operated as one company and that there was no distinction about who controlled the operations. He also faulted the company for not having an independent board of directors. Lawmakers also ripped on crypto. Congressman Brad Sherman.

BRAD SHERMAN: For five years, I've been trying to ban American investments in crypto. I'm the only member of the House to get an F from the only crypto-promoting organization that rates members of Congress. My fear is that we'll view Sam Bankman-Fried as just one big snake in a crypto Garden of Eden. The fact is crypto is a garden of snakes.

JENNIFER SCHONBERGER: While Bankman-Fried did not appear, his draft testimony was leaked, in which he intended to say, he wanted to say under oath that he, quote, "effed up." Despite Bankman-Fried's claims on Twitter that FTX had enough funds to make customers whole, Ray said at that time, just before bankruptcy, FTX did not have enough assets to cover liabilities. And when asked whether Bankman-Fried was working to undermine the scope of US federal bankruptcy law by moving assets into accounts controlled in the Bahamas, Ray said, "it appears so."

Now, Ray says he's been able to secure over $1 billion in assets. But this is an ongoing process and that it is going to take months. Back to you.

- We will have Congressman Sherman joining us live later in the program. Jen Schonberger, excellent reporting there. Thank you.