John J. Ray III, the new CEO of cryptocurrency exchange FTX ( FTT-USD ), is set to tell U.S. lawmakers on Tuesday that the once-mighty firm spent some $5B -- prior to filing for bankruptcy on November 11 -- on different investments and businesses, many of which may be worth just a fraction of what was paid, according to his prepared remarks dated Monday. Another $1B was said to have been loaned out to insiders. In addition, Ray, who oversaw Enron's high-profile bankruptcy in 2001, and his new team have discovered a number of other issues that ultimately led to the demise of FTX. In explaining why FTX US filed for bankruptcy along with the rest of Sam Bankman-Fried's crypto empire, Ray explained that "FTX US was not operated independently of FTX.com. Chapter 11 protection was necessary both to avoid a 'run on the bank' at FTX US and to allow our team the time to identify and protect its assets." Of note, SBF said recently that FTX US was solvent . On a somewhat brighter note, he will tell the House Financial Services Committee that his team has thus far secured more than $1B in digital assets, though that represents just a fraction of what FTX owes its creditors. "In the absence of cooperation from responsible parties or any appropriate system to track and protect crypto assets, we are continuing our painstaking forensic efforts to account for all of the assets, both as to the FTX US and FTX.com exchanges, as well as Alameda," he will say. Overall, Ray pointed to FTX's shortage in effective security controls, commingling of assets, the lack of documentation, Alameda's ability to borrow funds held at FTX and the absence of reliable financial statements as only some of the "unacceptable management practices" that took effect under SBF's leadership. "Although our investigation is ongoing and detailed findings will have to await its conclusion, the FTX Group’s collapse appears to stem from the absolute concentration of control in the hands of a very small group of grossly inexperienced and unsophisticated individuals who failed to implement virtually any of the systems or controls that are necessary for a company that is entrusted with other people’s money or assets," Ray will say. Previously, (Nov. 17) Ray censured management of FTX before bankruptcy .
