Livetweets of the December 13, 2022 House Financial Services Committee hearing on FTX
Here's an easier-to-follow version of my tweet thread of the December 13, 2022 House Financial Services Committee hearing on the FTX collapse.
I also recapped this hearing in an issue of my newsletter.
The FTX hearing by the House Committee on Financial Services starts in about twenty minutes. I'll be livetweeting it here, and will be publishing a recap of it in my newsletter later.
Rep. Waters (D-CA) asks Ray if there is evidence that SBF tried to hide links between Alameda and FTX, and if there was any independent governance.Ray says there was no segregation or independent governance, and Alameda, FTX, etc. were operated "as one company".
McHenry questioning Ray on distinctions between FTX.com and FTX.us."There was a public distinction between the two," but crypto assets were stored together.
Rep. Sherman's (D-CA) turn. He has not been quiet in the past about his distaste for crypto.
"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."Sherman urges his colleagues, "don't trash Mr. Bankman-Fried and then pass his bill!" and points to significant crypto lobbying influence on the House. Sherman is referring to the DCCPA.
Sherman also introduces into the record the letter from his colleagues to the SEC earlier this year, in which they urged the SEC to back off on crypto.(see "The Eight Congressmen Subverting the SEC’s Crypto Investigation", The American Prospect.)
Rep. Green (D-TX) points to SBF's academic background, and asks if it's possible that "all of this is just one big mistake", as SBF has been trying to portray it.
Ray says he is hesitant to cast judgment at this time, while they are still digging through records.
"Others will judge him by his actions," says Ray.
Green thinks this is "more than sincere ignorance and conscientious stupidity".Indeed.
Rep. Cleaver (D-MO) describes SBF's
submitted statement as "so disrespectful."
He reads, "'I would like to start out by formally stating under oath...' I can't even say it publicly. Absolutely insulting."
SBF was going to say "fuckup" in Congress, huh(SBF's draft statement was leaked to press. A correction to the above tweet: it was never formally submitted to Congress.)
Leutkemeyer is the first to ask about Moonstone Bank (fka Farmington State Bank), a bank with $5.7M net worth, into which Alameda invested $11.5M to acquire ~10% ownership.
Ray is looking into it, but doesn't seem to have much to say on it at this point.
See Protos' reporting for more on this very weird situation.
Leutkemeyer asks if there could be money laundering going on, or if FTX execs were using it to hide money.Ray again doesn't say anything specific, but acknowledges "It's highly irregular".
Rep. Huizenga (R-MI) asks if Ray has been sharing findings with the SDNY or the SEC.Ray confirms he has.
Huizenga asks about possible US users of FTX.com.
(US citizens are not supposed to be able to use FTX.com, and are instead relegated to FTX.us, which offers far fewer tokens for trading, has stricter limits on leverage, and has generally fewer features than its non-US regulated .com counterpart.)Ray says there are somewhere on the order of hundreds. He says that those customers having billions of dollars on FTX.com is probably an overly high estimate.
Huizenga now asking about the possible involvement of SBF's parents in FTX.Huizenga talks of a meeting he had with SBF last year, noting SBF was "at least fifteen minutes late" and accompanied by his father.
Rep. Beatty (D-OH) asks how Alameda accessed client funds in direct violation of their own terms."There was no oversight," and executives could "move money around undetected" said Ray.
Rep. Barr (R-KY) asks about an ESG ratings firm that gave FTX a higher rating for governance than Exxon-Mobil. He asks Ray, given his assessment of FTX governance, what would he say about that?Ray: "I'd get my money back"
Barr asks Ray to elaborate on why he doesn't think FTX's audits were reliable."Well, we've lost $8 billion, so by definition, I don't trust a single piece of paper in this organization."
Rep. Vargas (D-CA) is repeatedly firing shots at his Republican colleagues for promoting crypto.He tried to get Ray to say which regulatory agency he thinks should regulate crypto, but Ray declined to answer.
Ray confirms FTX has lost "in excess of $7 billion".
He outlines how funds were taken from FTX and used by Alameda, who incurred trading losses.Ray also describes how investments were made without any pro forma or valuation. "I'm really not quite sure how some of the purchase price numbers were derived, so it gives you a worry obviously that the purchases were overvalued."
Rep. Hill (R-AR) is a noted crypto advocate with an "A" rating from the "Crypto Action Network".He repeats McHenry's "bad apples" description, and makes the tired argument about how "we don't throw out railroads" because of fraud in the 1800s.
Rep. Himes (D-CT) describes "a 30-year-old gazillionaire who raised billions of dollars living in some condo with a bunch of young people."Pleased to report that the world "polycule" has not been yet been uttered in Congress today.
Ray: "Crypto assets have inherently some difficulties. The assets can be taken or lost. We have assets that are in what are called hot wallets and those that are in cold wallets. Hot wallets are very vulnerable to hacking. If you've done any looking on the Internet you'll find that hacking is almost ordinary course in this business sector. Lots of vulnerability to the wallets."If any Representative wants to know where to look on the Internet, have I got a site for you 😁
Emmer asked if there was a compliance department at FTX.Ray: "There were people with titles."
Rep. Meeks (D-NY) pushing the "financial inclusion" promise he sees in crypto 😮💨I would direct people to Tonantzin Carmona's report: "Debunking the narratives about cryptocurrency and financial inclusion", The Brookings Institution.
Rep. Loudermilk (R-GA): "Summarizing, there's not evidence right now that his statement would be true that FTX US is completely solvent."Ray: "Clearly not."
Gottheimer: "Do you believe Mr. Bankman-Fried when he says that all US users will receive a dollar on the dollar return of funds at the end of these bankruptcy proceedings?"Ray: "That's very speculative at this point."
Rep. Davidson (R-OH, member of the blockchain eight), also part of the blockchain eight: "Based on your review of the records, is the transfer of customer funds from FTX.com to Alameda research in conflict with the FTX.com terms of service?"Ray: "Yes, that's my view."
Rep. Budd (R-NC, part of the blockchain eight, recipient of hundreds of thousands of dollars of SBF-linked funds): "What happened at FTX was fraud on a massive scale... the head of FTX should be dealt with in the same way that other disgraced leaders of Enron were prosecuted to the fullest extent of the law... What I want to protect is innovation, and we want to see it flourish..."Blames SEC for regulation by enforcement, says they've forced crypto companies offshore. Talks up his own attempts to regulate crypto.
Rep. Torres (D-NY, part of the blockchain eight, recipient of FTX donations) asks if SBF was lying when he tweeted on Nov. 7 that "FTX has enough to cover all client holdings".
Ray: "I don't want to give the dignity to his comments. He also said he had $10 billion to invest in the company that day, so..."
Torres: "At that time when he sent out the tweet... did FTX actually have enough assets to cover their liabilities?"Ray: "Absolutely not."
Gonzalez (R-OH): "To your knowledge, were customer funds transferred to Alameda for the purposes of paying off called loans?"Ray: "That's certainly possible. We need to investigate that further, but that's certainly one of the paths that we would potentially find."
Gonzalez asks about the backdoor between FTX and Alameda, which SBF has denied knowing about. "In your eyes, is there any way that SBF or senior management wouldn't know about this sort of thing?"Ray: "No."
Gonzalez addresses claims in SBF's testimony, where he blames FTX's collapse on Binance, and says the company would have been fine otherwise.
Gonzalez: "Prior to that episode, is your belief that FTX was solvent?"Ray: "No."
Rose: "FTX and Alameda hold.. more than $30B of Tether. Can you describe the efforts you are taking to ensure that unwinding FTX and the bankruptcy proceedings won't cause unnecessary impacts to these digital asset markets?"not where I would've taken that question lol
Rep. Adams (D-NC): "Do you genuinely believe that these customers are ever going to get their money back?"
Ray: "It's a massive loss... it's too early to tell what the ultimate recovery will be to each customer."Adams: "It doesn't like you really think they're going to get their money back..."
Steil (R-WI) on the movement of funds out of FTX at direction of Bahamian authorities: "Do you have indication as to why Bahamian authorities made that request?"
Ray: "It wasn't a request. They just took it."
Steil: "There was no action required by FTX employees?"
Ray: "They were aided by the ex-employees. Mr. Wang and Mr. Fried."
Steil: "Is it in the eyes of Bahamian authorities that they did this to protect creditors? Do you have insight into the motivation behind this action?"
Ray: "Unlike Chapter 11, there's no transparency in the process in The Bahamas. We repeatedly asked them for clarity on what they've been doing and we've been shut down on that."
Steil: "They did not reply or it was unsatisfactory?"
Ray: "They put out statements that it was in the interest of Bahamian creditors, although our view is that it violated the automatic stay in bankruptcy."
Steil: "Do you believe that at that time Mr. Bankman-Fried was attempting to undermine Chapter 11 by expanding the scope, by moving assets to accounts under the control of Bahamian authorities?"
Ray: "It appears so."
Steil: "So it appears that he may be working to undermine the scope of US federal bankruptcy law."Ray: "That's what it appears, yes."
AOC wants to know if FTX opened Bahamian withdrawals in exchange for the ability to remain in control/influence of FTX.Ray: "We intend to investigate that very thing."
Rep. Timmons (R-SC) asks why the SDNY would have issued an arrest warrant "to facilitate [SBF's] arrest, to preclude his testimony which would have been incredibly helpful in the prosecution of SBF".Ray, obviously, can't answer that question.
- DOJ investigation into Binance
- DOJ investigation into Tether
- SEC investigation of Do Kwon (Terra/Luna)
Auchincloss asks for Ray's opinion of SBF's claims that, were he allowed to restart FTX, he could raise the financing and make customers whole.Ray: "In my history of doing corporate restructurings, I don't find that remotely believable because the first thing an investor would have to do is pay several billion dollars just to have the company back to the position it was in."
Gooden asks if Ray knows if any third-party exchanges that received funds from Alameda were affiliated with FTX co-founders or their family members.Ray says they are "certainly investigating that".