 The FTX hearing by the House Committee on Financial Services starts in about twenty minutes. I'll be livetooting it here, and will be publishing a recap of it in my newsletter later. Hearing stream: https://www.youtube.com/watch?v=rWAnrigAO3I 60 comments
Congressman @PatrickMcHenry says he is disappointed to not have @SBF_FTX testifying today, because he wanted to get "his lies here, on the record, under oath". McHenry parroting the "a few bad apples" crypto industry talking point: "We have to separate out the bad actions of an individual from the good created by an industry and an innovation. Let me be clear: I believe in the promise of digital assets and those around the world building on blockchain technologies." New FTX CEO John J. Ray III is giving his statement. This was published online last night, and I have a thread on it here: https://hachyderm.io/@molly0xfff/109503364400744245 Rep. Waters 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". Ray answers a question about loans to SBF: poor documentation of loans, "in one instance he signed as both the issuer of the loan as well as the recipient of the loan". They have no information as to the purpose of use of the loaned funds at this point. 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. Ray says he's not concerned about the cross-jurisdictional nature of this bankruptcy, and confident that various jurisdictions will cooperate. Ray just said that FTX used QuickBooks for recordkeeping. "A multibillion dollar using QuickBooks!" Rep. Sherman's 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. https://prospect.org/power/eight-congressmen-subverting-secs-crypto-investigation/ Sherman asks if Ray will turn over evidence of loans from the FTX businesses that may have been used for disguised campaign finance contributions. Ray confirms he will. Rep. Green 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. Sessions (R-TX) is asking about whether the SEC was engaged with FTX, and is inquiring about information submitted to the IRS. 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 "The bank situation should have been a real red flag," says Ray, in response to Rep. Luetkemeyer's (R-MO) question about FTX's early inability to get bank accounts. Leutkemeyer is the first to ask about Moonstone Bank (fka Farmington State Bank), a bank with $5.7M, into which Alameda invested $11.5M to acquire ~10% ownership. Good question! 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: https://protos.com/the-curious-case-of-ftx-and-farmington-state-bank-aka-moonstone/ 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. Perlmutter (D-CO) asks if dogecoin is pronounced "doe-gee-coin" or "doggycoin". Someone helps him out. "Oh, dohj-coin!" Rep. Waters enters into the record the three criminal filings against SBF, from the SDNY, SEC, and CFTC. 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. Ray says there were somewhere on the order of hundreds. He says that those customers having billions of dollars on FTX.com is probably an overly high estimate. Ray says they haven't yet seen evidence of direct transfer of funds from FTX.us to Alameda, but they are very concerned about possible commingling of funds between FTX.com and FTX.us. 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 distinguishes the "sophisticated" crimes he observed at Enron, and the "old-fashioned embezzlement" that he has observed at FTX. Rep. San Nicolas (D-Guam) has two Dunkin iced coffee cups next to him. This Bostonian approves. 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. San Nicolas explains his line of questioning: "The FTX collapse right now is just FTX. But are these lack of controls, and are these environments that resulted in the FTX collapse still existing today? And could the same thing happen in similar operations, such as Binance for example? Could they also engage in the same activities under the current regulatory regime and, if things go wrong, have the same outcome?" 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 😁 Ray speaks of specific failures at FTX: "Our keys aren't stored in a centralized location. We don't know where all of our wallets are. Passwords were sometimes kept in just plaintext format." Rep. Emmer (R-MN) is up. He's a huge crypto advocate, and is one of the "blockchain eight" who signed the letter urging the SEC to back off. He's recently been trying to pin the FTX collapse on SEC chair Gary Gensler. Emmer is now accusing Gensler of refusing to answer questions or testify before the House FSC, and wants Ray to share any communications he has between FTX and Gensler. Ray confirms he will. Emmer takes a moment to advertise crypto, and blame the collapse on centralization rather than crypto as a whole. 🙄 Emmer asked if there was a compliance department at FTX. Ray: "There were people with titles." Ray: "Alameda had almost a complete ability to lose money beyond their collateral." Rep. Meeks (D-NY) pushing the "financial inclusion" promises he sees in crypto 😮💨 I would direct people to Tonantzin Carmona's report: https://www.brookings.edu/research/debunking-the-narratives-about-cryptocurrency-and-financial-inclusion/ Rep. Loudermilk (GA): "Summarizing, there's not evidence right now that his statement would be true that FTX US is completely solvent." Ray: "Clearly not." Rep. Gottheimer (D-NJ), also a part of the blockchain eight, spending a significant portion of his time talking up his own record in trying to regulate crypto, and denigrating the SEC and Gary Gensler. 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." |
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I'll use the #FTXhearing hashtag throughout, so feel free to filter it out if I'm clogging your feed or you'd rather catch up later.