November 17, 2022

Warren, Durbin Seek Answers From FTX Founder Sam Bankman-Fried After Billion-Dollar Collapse of Crypto Firm

“FTX customers around the world, including in the U.S., fear that they will never get back the assets they trusted to FTX and its subsidiaries.” “These developments justify our long-standing concerns that the crypto industry “is built to favor scammers” and “designed to reward insiders and to defraud mom-and-pop investors.” “One thing is clear: the public is owed a complete and transparent accounting of the business practices and financial activities leading up to and following FTX’s collapse

Text of Letter (PDF)

Washington, D.C. - US Senator Elizabeth Warren (D-Mass.), a member of the Senate Banking, Housing, and Urban Affairs Committee and Senator Dick Durbin (D-Ill), a member of the Senate Agriculture Committee, sent a letter to Sam Bankman-Fried, founder and former CEO of FTX Trading Ltd. (FTX), and John Jay Ray III, the newly appointed CEO of FTX, seeking information on the reported misuse of billions of dollars of customer funds and other disturbing allegations that continue to emerge about the company’s fraudulent and illicit practices. This letter follows FTX’s filing for bankruptcy after losing billions of investors’ dollars. 

“While the full extent of the damage wrought by FTX and its affiliates continues to unfold, billions of dollars-worth of investor funds seem to have disappeared into the ether. These massive losses raise questions about the behavior of former FTX CEO Sam Bankman-Fried and other company executives, the apparent lack of due diligence by venture capital and other big investment funds eager to get rich off crypto, and the risk of broader contagion across the crypto market that could multiply retail investors’ losses – all of which ‘call into question the promise of the industry,’” wrote the lawmakers.

With each passing day, new and devastating details are emerging about FTX’s operations and its resultant collapse. FTX was until recently valued at $32 billion and “widely viewed as one of the most stable and responsible companies in the freewheeling, loosely regulated crypto industry.” However, the public now knows that Mr. Bankman-Fried, FTX, and its affiliated crypto hedge fund, Alameda Research LLC (Alameda), engaged in a growing list of dangerous and deceptive – if not illegal – activities. Chief among those are allegations that:

  1. Mr. Bankman-Fried secretly transferred $10 billion in FTX customer assets to Alameda to fund risky bets, a move that was known to FTX and Alameda executives but hidden from auditors;
  2. Around $1.7 billion in FTX customer assets have gone missing, and hundreds of millions in digital assets were stolen from FTX wallets;
  3. Days before declaring bankruptcy, Mr. Bankman-Fried tweeted, and subsequently deleted tweets reading, “FTX is fine. Assets are fine,” “FTX US, the US based exchange that accepts Americans, was not financially impacted… It’s 100% liquid. Every user could fully withdraw,” and “FTX has enough to cover all client holdings. We don’t invest client assets (even in treasuries);”
  4. The day before it declared bankruptcy, FTX had $9 billion in liabilities but only $1 billion in liquid assets, and that its largest asset was an illiquid token issued by a crypto entity it had co-created with Alameda.  

In the letter, the lawmakers request information related to FTX’s collapse, including:

  1. An explanation of how FTX’s liquidity crisis occurred; 
  2. An accounting of all customer funds transferred out of FTX, including persons responsible for and aware of those transfers; 
  3. Complete copies of all internal policies and procedures regarding the relationship between FTX and Alameda;
  4. An explanation of how $1.7 billion in customer assets went missing;
  5. Complete copies of internal communications and/or materials related to the November 12 transactions in which $663 million in digital assets were moved out of FTX wallets.

Senators Warren and Durbin are outspoken advocates for reining in cryptocurrency to protect consumers, national security, and the environment:

  • On September 16, 2022, Senator Warren sent a letter to Treasury Secretary Yellen calling on the Treasury Department (Treasury) and the Financial Stability Oversight Council (FSOC) to build a strong regulatory framework for the crypto market.
  • On September 15, 2022, at a Senate Agriculture Committee hearing, Senator Durbin questioned the Commodity Futures Trading Commission (CFTC) Chairman Rostin Behnam about financial market stability given the extreme volatility of the crypto market.
  • On September 9, 2022, Senators Warren, Bob Menendez (D-N.J.),  Sherrod Brown (D-Ohio), Dianne Feinstein (D-Calif.), Bernie Sanders (I-Vt.), and Cory Booker (D-N.J.) sent a letter to Meta CEO Mark Zuckerberg, requesting information about the company’s efforts to combat cryptocurrency scams and hold bad actors accountable for cryptocurrency fraud on its platforms. 
  • On August 2, 2022, in a speech on the Senate Floor, Senator Durbin raised questions about cryptocurrency and the dangers it poses to personal finances.
  • In August 2022, Senators Warren, Dick Durbin , Sheldon Whitehouse (D-R.I.), and Bernie Sanders sent a letter to the Office of the Comptroller of the Currency requesting that Acting Comptroller of the Currency, Michael Hsu, rescind the previously issued cryptocurrency guidance and replace it with more comprehensive guidance, in coordination with other prudential regulators. The lawmakers also asked for details regarding the extent to which banks are currently engaging in crypto-related activities. 
  • On July 26, 2022, Senators Durbin, Warren, and Tina Smith (D-Minn.) sent a letter to Fidelity Investments raising concerns about the potential risks and financial dangers associated with investing in digital assets, especially on Americans’ retirement plans.
  • In July 2022, at a hearing of the Senate BHUA Committee, Senator Warren called out the role that large institutional investors, including venture capital, hedge funds, and private equity, play in funding, hyping, and sucking money from crypto projects that scam mom-and-pop investors. 
  • In July 2022,  Senators Warren, Whitehouse, Edward J. Markey (D-Mass.) and Jeff Merkley (D-Ore.) and Representatives Jared Huffman (D-Calif.) and Rashida Tlaib (D-Mich.) sent a letter to the Environmental Protection Agency and the Department of Energy, highlighting findings from their investigation into the environmental impacts of crypto mining and requesting that the EPA and DOE work together to require crypto miners to report their emissions and energy use. 
  • In May 2022, Senators Warren and Tina Smith (D-Minn.) sent a letter to Fidelity, asking the company to explain its decision to allow Bitcoin investments for 401(k) plans, despite the Department of Labor’s warnings about 401(k) crypto investments.
  • In March 2022, Senator Warren, Senate Armed Services Committee Chair Jack Reed (D-R.I.), Senate Intelligence Committee Chair Mark Warner (D-Va.), and Senate Defense Appropriations Subcommittee Chair Jon Tester (D-Mt.) introduced the Digital Asset Sanctions Compliance Enhancement Act to ensure that Vladimir Putin and Russian elites don't use digital assets to undermine the international community’s economic sanctions against Russia following its invasion of Ukraine.
  • In March 2022, at a BHUA Committee hearing, Senator Warren highlighted the various cryptocurrency tools that could make it easier for sanctioned individuals to hide their wealth and lessen the impact of Russian sanctions.
  • In March 2022, Senator Warren warned that cryptocurrency may allow Russia to dodge sanctions and urged stronger regulation of the crypto market to ensure that countries, drug traffickers, cyber criminals, and tax cheats can’t evade economic pain
  • In March 2022, Senators Warren, Warner, Reed, and Brown sent a letter to Treasury Secretary Janet Yellen, asking about the Treasury Department’s plans to enforce sanctions-compliance guidance for the cryptocurrency industry to ensure that economic sanctions remain an effective tool for achieving foreign policy goals.
  • In January 2022, Senators Warren, Whitehouse, Merkley, Markey, and Maggie Hassan (D-N.H.), and Representatives Tlaib, Huffman, and Katie Porter (D-Calif.) sent letters to six cryptomining companies raising concerns over their extraordinarily high energy usage. 
  • In December 2021, Senator Warren sent a letter to Greenidge Generation Holdings Inc., which operates a Bitcoin mining facility in upstate New York, expressing concern about the company’s energy usage and its impacts on the environment and consumers.
  • In December 2021, during a BHUA Committee hearing, Senator Warren raised concerns over the growing risks presented by stablecoins. 
  • In September 2021, Senator Warren called on regulators to step up to address crypto's regulatory gaps and ensure an inclusive financial system. 
  • In July 2021, Senator Warren sent a letter to the Securities and Exchange Commission Chair Gary Gensler requesting information about the agency's authority to regulate cryptocurrency exchanges and protect consumers from risks posed by the highly volatile cryptocurrency market.
  • In June 2021, chairing a hearing of the Senate Banking, Housing, and Urban Affairs Committee's Subcommittee on Economic Policy, Senator Warren delivered remarks on the opportunities and risks that digital currencies present. 
  • In a June 2021 interview, Senator Warren called the market for cryptocurrencies the “wild west,” and said digital currency is “not a good way to buy and sell things and not a good investment and an environmental disaster.”