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FTX collapsed due to

Cryptocurrency exchange FTX Trading did not have reliable financial statements, allowed top executives to redirect client funds, and failed to properly document transactions, its new CEO plans to tell Congress on Tuesday.

John J. Ray III, who took over as director of FTX after it filed for bankruptcy a month ago, will testify before the House Financial Services Committee in 10 a.m. Eastern Time. FTX founder Sam Bankman-Fried will also speak.

Bankman-Fried gave an interview last month at the New York Times Dealbook Summit in which he said not knowing to what extent of FTX’s problems and said that while it made mistakes, it did not commit fraud.

“Unsophisticated Individuals”

Ray has called FTX’s management the worst he’s seen in a 40-year career that included overseeing the Enron bankruptcy. in prepared observations shared by the committee on Monday, said that FTX collapsed because the “very small group of extremely inexperienced and unsophisticated people” who ran the company “failed to implement virtually none of the systems or controls that are necessary for a company to which has been entrusted with other people’s money or property.”

Among those flaws, which Ray summarizes: FTX Group computers allowed top executives to access client accounts and redirect assets; Alameda, the company’s research arm, could borrow unlimited amounts of money from FTX; nearly 500 investments made with FTX Group lacked transaction documentation; the company did not provide audited or reliable financial statements; and FTX did not have finance and risk management staff.

FTX Co-Founder Sam Bankman-Fried Defends Cryptocurrency Exchange Collapse


The testimony also says that FTX lent more than $1 billion to insiders and that the company went on a “spending binge” late last year, buying $5 billion in companies Ray says are worth “just a fraction” of that amount.

FTX, once the world’s second-largest cryptocurrency exchange, raised nearly $2 billion from investors over three years before suddenly crashing in November. The Bahamas-based company shocked the cryptocurrency industry when it filed for Chapter 11 bankruptcy last month. Bankman-Fried, who has been giving interviews since the Bahamas, is under research in the US and abroad for possible securities violations.

FTX must at least $3 billion to creditorsaccording to bankruptcy filings.

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