FTX CEO accuses former executives of storing private keys unencrypted

FTX stored private keys without encryption. This is stated in the transcript of the testimony of the new CEO of the bitcoin exchange John Ray III before the US House of Representatives Committee on Financial Services.

According to the executive, the platform’s new leadership has put in place steps to safeguard digital assets worth more than $1 billion.

The business processes built by Sam Bankman-Fried’s team risked theft or other malicious activity “hundreds of millions of dollars,” the document says.

In the actions of the former FTX team, John Ray III saw “old-fashioned embezzlement,” rather than the elaborate, meticulously planned crimes he faced during the liquidation of Enron collapse.

“This is simply using client funds for their own purposes,” the expert said.

The expert reiterated his previous statements about the platform lacking independent governance and consistent accounting.

In particular, information about FTX and FTX US crypto assets was stored in a single database. The top management used the QuickBooks accounting software package — “not very suitable for a multi-billion-dollar company.” Invoicing was done via Slack.

John Ray III pointed to a free flow of liquidity between Alameda Research and FTX, including customer funds of the latter. He added that he is examining loans to insiders, including Bankman-Fried.

“We do not know for sure whether the team could have moved the digital assets to a cold wallet, about which we have no knowledge. If they did, I hope we will be able to find traces”, the expert conceded.

The expert agreed with lawmakers’ suggestions that Bankman-Fried made the US bankruptcy process more cumbersome when he handed over control of the remaining FTX assets to Bahamian authorities.

Chairwoman Maxine Waters expressed regret that the former CEO was arrested before his appearance before Congress, which “deprived the public of the opportunity to obtain the answers it deserves.”

In November, unknown moved assets from FTX wallets worth more than $400 million. They subsequently swapped tokens for Ethereum with conversion to wrapped Bitcoin from Ren Protocol and with further transfer of the first cryptocurrency through a cross-chain bridge to the mainnet. Subsequently 255 BTC ended up on the OKX exchange.

According to Elliptic, the total damage from the attackers’ actions amounted to $477 million. Bankman-Fried described the unauthorized withdrawal from the platform as a “hacker attack” that could have been carried out by either a former employee or a malware program.

A week after the incident, the Securities Commission of the Bahamas said that transferred all FTX Digital Markets assets to a wallet controlled by it.

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