What to watch for in the FTX hearings following Sam Bankman-Fried’s arrest
What to watch for in the FTX hearings following Sam Bankman-Fried’s arrestZachary Halaschak
December 13, 09:31 AM December 13, 09:31 AM
Congress is set to hold hearings Tuesday and Wednesday on the dramatic collapse of the cryptocurrency exchange FTX.
Embattled founder Sam Bankman-Fried won’t be testifying, as he was arrested Monday in a move that came as a surprise to members of Congress.
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Here is what to expect.
The House Financial Services Committee will hold a hearing on the FTX collapse Tuesday, focusing on what led up to FTX’s sudden implosion just over a month ago.
In the lead-up to the panel, there was a deal of uncertainty about whether Bankman-Fried, known in the cryptocurrency world as SBF, would show up. The 30-year-old previously said over Twitter that he might not testify but had confirmed his willingness to attend on Friday, before his arrest. John Ray III, who took over FTX following its downfall, will testify, though.
“While I am disappointed that we will not be able to hear from Mr. Bankman-Fried tomorrow, we remain committed to getting to the bottom of what happened, and the Committee looks forward to beginning our investigation by hearing from Mr. John Ray III tomorrow,” committee Chairwoman Maxine Waters (D-CA) said in a statement Monday night.
The Senate Banking Committee will also hold a hearing about FTX’s collapse this week on Wednesday, featuring Kevin O’Leary, the Canadian investor and Shark Tank personality who had backed FTX.
What did SBF know, and when did he know it?
At the heart of the various inquiries and investigations into FTX is how much Bankman-Fried knew about the structural problems plaguing his company and for how long. Lawmakers are seeking specifics related to what caused the implosion, and they also want concrete details about the timeline from FTX’s founding more than three years ago to its bankruptcy just over a month ago.
Lawmakers had hoped to question SBF about Alameda Research, which was closely tied to FTX, as he was during a recent televised interview with CNBC’s Andrew Ross Sorkin.
Alameda was a cryptocurrency trading firm that was created in 2017 before FTX was formed. It marked Bankman-Fried’s first entry into the cryptocurrency world and was used at first to conduct arbitrage trades. FTX was formed as a cryptocurrency exchange to fund Alameda, and the two companies propped one another up, meaning they both toppled when FTX collapsed.
During the Sorkin interview, in which he appeared visibly uncomfortable, Bankman-Fried was asked about the ties between FTX and the hedge fund and appeared to deflect blame from himself and onto Alameda Research. He claimed that he “didn’t ever try to commit fraud on anyone.”
“I didn’t knowingly commingle funds,” Bankman-Fried said.
“I wasn’t running Alameda,” he added. “I was nervous because of the conflict of interest of being too involved.”
John Ray III’s testimony
Ray is slated to testify on Tuesday. He has led the company as CEO since just after its collapse and will have key insights into the state of FTX around the time of its implosion.
Ray has overseen some of the largest corporate failures in the history of the United States, including the collapse of Enron, and last month, he revealed his shock at the FTX situation in a filing in federal bankruptcy court.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” the new FTX leader said.
“From compromised systems integrity and faulty regulatory oversight abroad to the concentration of control in the hands of a very small group of inexperienced, unsophisticated, and potentially compromised individuals, this situation is unprecedented,” he said.
Prospect of regulation
Those watching the hearing should listen for any hints of future regulation. While congressional hearings are conducted primarily to question the witnesses, lawmakers are known for using their questioning period to, at times, soapbox and hint at their own thoughts on the situation at hand — including the prospect of related legislation.
With FTX’s collapse, many cryptocurrency critics have called for increased federal regulation of digital assets.
Commodity Futures Trading Commission Chairman Rostin Behnam testified before Congress earlier this month and implored lawmakers to give his agency increased regulatory authority to prevent fraud and malfeasance in the digital asset space, saying that the FTX collapse demands accountability.
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“As I have stated publicly many times before, I strongly believe that we need to move quickly on a thoughtful regulatory approach to establish guardrails in these fast-growing markets of evolving risk, or they will remain an unsafe venture for customers and could present a growing risk to the broader financial system,” he said.
Some lawmakers might use the hearing to hint at their plans for regulation or express support for various plans to regulate cryptocurrencies further.