Sam Bankman-Fried, the founder of bankrupt crypto exchange FTX, had planned to testify remotely before the House Committee on Financial Services on Tuesday, but he was arrested in the Bahamas on Monday at the U.S. government’s request.
As the Committee’s Chairwoman Rep. Maxine Waters (D-CA) noted in her request for SBF to testify, FTX’s collapse has “harmed over one million people” and lawmakers wanted answers.
According to Forbes, which obtained a copy of his draft testimony, we now know what Bankman-Fried would have told lawmakers had he not been arrested.
“I would like to start by formally stating, under oath: I f***ed up,” he wrote. “I know that it doesn’t mean much to say that I’m sorry. And so I’m dedicating as much of myself as I can to doing right by customers. When all is said and done, I’ll judge myself primarily by one metric: whether I have eventually been able to make customers whole. If I fail our customers in this regard, I have failed myself.”
SBF also revealed that court-appointed CEO John Ray is not speaking to him and that current leadership pressured him to file for bankruptcy, which he regrets, claiming he received “a potential funding offer for billions of dollars” shortly after signing the paperwork leading to the bankruptcy.
Bankman-Fried planned to devote much of his testimony to blaming Sullivan Cromwell for the events that followed FTX’s collapse. When the crypto exchange imploded, the bankruptcy law firm was retained by FTX to represent it in Chapter 11 proceedings. Since the beginning of his apology tour, Bankman-Fried has expressed regret for filing for Chapter 11 for FTX US. Though he ultimately made the decision and signed the paperwork, Bankman-Fried alleges that “S&C pressured me to file Chapter 11 documents, and filed the documents despite my instructions not to.”
“I have 19 pages of screenshots of Sullivan & Cromwell, Mr. Miller, and others I believe were influenced by them, all sent over a two day period, pressuring me to quickly file for Chapter 11,” he planned to tell Congress. “They range from adamant to mentally unbalanced.”
In the testimony, he blames Sullivan Cromwell and Ray for not releasing funds for FTX US customers and alleges that they have a financial motive. The law firms that represented Enron “were paid roughly $700m (!!!) in fees from funds that would otherwise have gone to creditors,” he planned to say.
“Needless to say, Sullivan & Cromwell has not made sure that we are all represented through this,” Bankman-Fried wrote. “They have, however, done a good job of making sure they were wired $4M.” (Forbes)
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Bankman-Fried further wrote that despite FTX being the second-largest cryptocurrency exchange in the world, it lacked internal controls, including a risk-management team.
“While FTX International had a team dedicated to financials, and to many other areas of the business, it did not have a team dedicated to risk management, or to user position monitoring,” he planned to say. “I, as CEO, did not put adequate effort into monitoring risk on FTX.”
And as Forbes points out, “the most bizarre [claim] from his prepared remarks was that FTX’s dashboard did not accurately show the size of the holdings of Alameda Research, its sister trading arm, something he blamed on a 'historical accounting quirk,' without offering more details.”
“I now believe that Alameda’s position was over twice as large as what was displayed,” his remarks say. “My periodic assessments of the riskiness of our positions were often based on the dashboard’s numbers.”
On Tuesday, prosecutors for the Department of Justice’s Southern District of New York unsealed the criminal indictment against SBF that included charges of wire fraud, conspiring to defraud the U.S., and violating campaign finance laws.
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