Sam Bankman-Fried Set to Testify to Congress About FTX Collapse

Mr. Bankman-Fried’s appearance caps a stunning downfall of an executive who just months ago was showering Congress, including members of the committee, with political donations. He and FTX executives spent about $70 million ahead of the 2022 midterm elections in an effort to sway the regulation of the nascent crypto industry. Now, Mr. Bankman-Fried is in the hot seat as the committee tries to get to the bottom of what caused the firm’s implosion into bankruptcy last month.

John J. Ray III, the new chief executive leading FTX in bankruptcy, is listed by the committee as a witness for the hearing.

Mr. Bankman-Fried’s decision follows a back-and-forth on Twitter between him and Rep.

Maxine Waters

(D., Calif.), the chairwoman of the committee. Earlier this month, he declined to testify, saying he wanted to wait until he finished learning and reviewing what caused FTX’s swift downfall.

Ms. Waters pushed back, tweeting earlier this week: “Based on your role as CEO and your media interviews over the past few weeks, it’s clear to us that the information you have thus far is sufficient for testimony.”

The FTX collapse has rocked the crypto world. Before FTX’s November bankruptcy filing, the exchange was an industry titan, and Mr. Bankman-Fried its smiling public face. This past spring, Mr. Bankman-Fried’s offers to buy struggling crypto firms were widely compared to actions financier John Pierpont Morgan took more than a century earlier. FTX raised money from some of Silicon Valley’s most sophisticated investors, at a valuation of $32 billion.  

FTX lent billions of dollars worth of customer assets to fund risky bets by its affiliated trading firm, Alameda Research, the Journal has reported, setting the stage for its quick collapse.

The Senate Banking Committee also has scheduled a hearing to probe the FTX collapse next week. Its leaders, Sens.

Sherrod Brown

(D., Ohio) and

Pat Toomey

(R., Penn.), sought to compel Mr. Bankman-Fried through a subpoena to appear if he doesn’t do so voluntarily.

Lawyers said the threat is likely empty given Mr. Bankman-Fried’s location outside the U.S. Mr. Bankman-Fried is living in the Bahamas. 

Noting Mr. Bankman-Fried’s plan to appear before the House financial-services committee, Mr. Toomey tweeted Friday that he and Mr. Brown “also expect you at [the Senate Banking Committee] the next day.”

Before the exchange’s collapse, Mr. Bankman-Fried frequently appeared in Washington, testifying before Congress, speaking on panels and mingling with members of Congress and their staffers. Mr. Bankman-Fried sought to influence how his firm and the crypto industry would be policed. Currently, cryptocurrency largely falls outside the rules that govern other aspects of the financial system.

Mr. Bankman-Fried personally gave some $40 million to politicians and political-action committees ahead of the midterm elections, according to the Center for Responsive Politics, a nonpartisan group that tracks campaign donations. Mr. Bankman-Fried was the No. 2 overall top donor to Democrats in 2022 election cycle, behind

George Soros.

Another top FTX executive, Ryan Salame, donated more than $23 million, mainly to Republicans and conservative groups.

Among the lawmakers set to face Mr. Bankman-Fried on Tuesday are several members of the so-called Blockchain Caucus—key allies of the crypto industry on Capitol Hill. The committee also includes six of the eight lawmakers who signed a March letter to Securities and Exchange Commission Chair

Gary Gensler

questioning the agency’s investigations of crypto firms.

The letter didn’t mention any specific companies. The Journal has since reported that the SEC is investigating FTX. A person familiar with the matter said that the probe was ongoing in March.

Three of the committee members who signed the letter—Reps. Ritchie Torres (D., N.Y.),

Josh Gottheimer

(D., N.J.) and Jake Auchincloss (D., Mass.)—had received thousands of dollars in campaign contributions from Mr. Bankman-Fried or his brother just weeks beforehand. Two others—Reps.

Tom Emmer

(R., Minn.) and Ted Budd (R., N.C.)—received donations later from Mr. Salame.

Mr. Torres on Tuesday called on the Government Accountability Office to “conduct an independent review of the SEC’s failure to protect the investing public from the egregious mismanagement and malfeasance of FTX.” He called SEC Chair Gary Gensler “singularly responsible for the regulatory failures surrounding the collapse of FTX.”

An SEC spokesman declined to comment.

In a statement, Mr. Torres said he knew Mr. Bankman-Fried’s brother through a political-spending committee called Guarding Against Pandemics. He said the FTX founder’s contribution to his campaign was unsolicited and that he has since donated it to charity.

A spokesman for Mr. Auchincloss said the lawmaker “has been clear from day one that crypto needs strong and clear laws from Congress.” He also criticized the SEC for failing to foresee the FTX implosion.

A spokeswoman for Mr. Emmer declined to comment on the campaign contributions or his relationship with Mr. Bankman-Fried, but provided a link to a Twitter post in which the congressman provided commentary on the March letter to Mr. Gensler.

Spokespeople for Messrs. Gottheimer and Budd didn’t respond to a request for comment.

The House committee also expects to hear from Mr. Ray, who has experience with financially distressed companies, including Enron, where he was chairman of the board from 2004 to 2009. He helped oversee distributions to the bankrupt company’s creditors.

He described FTX’s collapse in recent court filings as an “unprecedented debacle” brought on by a culture of lax corporate governance. “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,” Mr. Ray said in the filing.

Mr. Ray has repeatedly criticized Mr. Bankman-Fried for making “erratic and misleading public statements” about FTX, setting the stage for a potential confrontation between the two at Tuesday’s hearing, depending on how it is structured.

The Journal reported on Friday that Mr. Bankman-Fried was part of a Signal group chat, titled “Exchange coordination,” with senior executives at large crypto exchanges, according to people familiar with the chats.

Changpeng Zhao,

chief executive of crypto-exchange giant Binance, Paolo Ardoino, chief technology officer of stablecoin issuer Tether Holdings Ltd.,

Justin Sun,

founder of crypto network Tron, and Kraken co-founder

Jesse Powell,

also were part of the chat group.

Mr. Zhao confronted Mr. Bankman-Fried on the chat on Nov. 10, according to the people and chats viewed by The Journal.

“Stop trying to depeg stablecoins. And stop doing anything. Stop now, don’t cause more damage,” Mr. Zhao told Mr. Bankman-Fried, according to the messages viewed by the Journal.

The confrontation stemmed from trades by Alameda Research that the Binance CEO and others feared were aimed at destabilizing tether—a stablecoin pegged to the dollar. Because of tether’s importance in crypto markets, a drop in its price could have pushed down other cryptocurrencies.

Mr. Bankman-Fried denied the claims in the Signal messages and in a statement to the Journal.

The confrontation shows the scale of the jitters in the crypto market as FTX was fighting for survival and investors worried about potential contagion. It also underscores the unconventional business practices in the crypto market. Such a chat group would be unthinkable in the world of traditional exchanges, due to concerns about collusion and potential antitrust violations.

—Alexander Osipovich and Alexander Saeedy contributed to this article.

Write to Paul Kiernan at [email protected] and Caitlin Ostroff at [email protected]

Mr. Bankman-Fried’s appearance caps a stunning downfall of an executive who just months ago was showering Congress, including members of the committee, with political donations. He and FTX executives spent about $70 million ahead of the 2022 midterm elections in an effort to sway the regulation of the nascent crypto industry. Now, Mr. Bankman-Fried is in the hot seat as the committee tries to get to the bottom of what caused the firm’s implosion into bankruptcy last month.

John J. Ray III, the new chief executive leading FTX in bankruptcy, is listed by the committee as a witness for the hearing.

Mr. Bankman-Fried’s decision follows a back-and-forth on Twitter between him and Rep.

Maxine Waters

(D., Calif.), the chairwoman of the committee. Earlier this month, he declined to testify, saying he wanted to wait until he finished learning and reviewing what caused FTX’s swift downfall.

Ms. Waters pushed back, tweeting earlier this week: “Based on your role as CEO and your media interviews over the past few weeks, it’s clear to us that the information you have thus far is sufficient for testimony.”

The FTX collapse has rocked the crypto world. Before FTX’s November bankruptcy filing, the exchange was an industry titan, and Mr. Bankman-Fried its smiling public face. This past spring, Mr. Bankman-Fried’s offers to buy struggling crypto firms were widely compared to actions financier John Pierpont Morgan took more than a century earlier. FTX raised money from some of Silicon Valley’s most sophisticated investors, at a valuation of $32 billion.  

FTX lent billions of dollars worth of customer assets to fund risky bets by its affiliated trading firm, Alameda Research, the Journal has reported, setting the stage for its quick collapse.

The Senate Banking Committee also has scheduled a hearing to probe the FTX collapse next week. Its leaders, Sens.

Sherrod Brown

(D., Ohio) and

Pat Toomey

(R., Penn.), sought to compel Mr. Bankman-Fried through a subpoena to appear if he doesn’t do so voluntarily.

Lawyers said the threat is likely empty given Mr. Bankman-Fried’s location outside the U.S. Mr. Bankman-Fried is living in the Bahamas. 

Noting Mr. Bankman-Fried’s plan to appear before the House financial-services committee, Mr. Toomey tweeted Friday that he and Mr. Brown “also expect you at [the Senate Banking Committee] the next day.”

Before the exchange’s collapse, Mr. Bankman-Fried frequently appeared in Washington, testifying before Congress, speaking on panels and mingling with members of Congress and their staffers. Mr. Bankman-Fried sought to influence how his firm and the crypto industry would be policed. Currently, cryptocurrency largely falls outside the rules that govern other aspects of the financial system.

Mr. Bankman-Fried personally gave some $40 million to politicians and political-action committees ahead of the midterm elections, according to the Center for Responsive Politics, a nonpartisan group that tracks campaign donations. Mr. Bankman-Fried was the No. 2 overall top donor to Democrats in 2022 election cycle, behind

George Soros.

Another top FTX executive, Ryan Salame, donated more than $23 million, mainly to Republicans and conservative groups.

Among the lawmakers set to face Mr. Bankman-Fried on Tuesday are several members of the so-called Blockchain Caucus—key allies of the crypto industry on Capitol Hill. The committee also includes six of the eight lawmakers who signed a March letter to Securities and Exchange Commission Chair

Gary Gensler

questioning the agency’s investigations of crypto firms.

The letter didn’t mention any specific companies. The Journal has since reported that the SEC is investigating FTX. A person familiar with the matter said that the probe was ongoing in March.

Three of the committee members who signed the letter—Reps. Ritchie Torres (D., N.Y.),

Josh Gottheimer

(D., N.J.) and Jake Auchincloss (D., Mass.)—had received thousands of dollars in campaign contributions from Mr. Bankman-Fried or his brother just weeks beforehand. Two others—Reps.

Tom Emmer

(R., Minn.) and Ted Budd (R., N.C.)—received donations later from Mr. Salame.

Mr. Torres on Tuesday called on the Government Accountability Office to “conduct an independent review of the SEC’s failure to protect the investing public from the egregious mismanagement and malfeasance of FTX.” He called SEC Chair Gary Gensler “singularly responsible for the regulatory failures surrounding the collapse of FTX.”

An SEC spokesman declined to comment.

In a statement, Mr. Torres said he knew Mr. Bankman-Fried’s brother through a political-spending committee called Guarding Against Pandemics. He said the FTX founder’s contribution to his campaign was unsolicited and that he has since donated it to charity.

A spokesman for Mr. Auchincloss said the lawmaker “has been clear from day one that crypto needs strong and clear laws from Congress.” He also criticized the SEC for failing to foresee the FTX implosion.

A spokeswoman for Mr. Emmer declined to comment on the campaign contributions or his relationship with Mr. Bankman-Fried, but provided a link to a Twitter post in which the congressman provided commentary on the March letter to Mr. Gensler.

Spokespeople for Messrs. Gottheimer and Budd didn’t respond to a request for comment.

The House committee also expects to hear from Mr. Ray, who has experience with financially distressed companies, including Enron, where he was chairman of the board from 2004 to 2009. He helped oversee distributions to the bankrupt company’s creditors.

He described FTX’s collapse in recent court filings as an “unprecedented debacle” brought on by a culture of lax corporate governance. “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,” Mr. Ray said in the filing.

Mr. Ray has repeatedly criticized Mr. Bankman-Fried for making “erratic and misleading public statements” about FTX, setting the stage for a potential confrontation between the two at Tuesday’s hearing, depending on how it is structured.

The Journal reported on Friday that Mr. Bankman-Fried was part of a Signal group chat, titled “Exchange coordination,” with senior executives at large crypto exchanges, according to people familiar with the chats.

Changpeng Zhao,

chief executive of crypto-exchange giant Binance, Paolo Ardoino, chief technology officer of stablecoin issuer Tether Holdings Ltd.,

Justin Sun,

founder of crypto network Tron, and Kraken co-founder

Jesse Powell,

also were part of the chat group.

Mr. Zhao confronted Mr. Bankman-Fried on the chat on Nov. 10, according to the people and chats viewed by The Journal.

“Stop trying to depeg stablecoins. And stop doing anything. Stop now, don’t cause more damage,” Mr. Zhao told Mr. Bankman-Fried, according to the messages viewed by the Journal.

The confrontation stemmed from trades by Alameda Research that the Binance CEO and others feared were aimed at destabilizing tether—a stablecoin pegged to the dollar. Because of tether’s importance in crypto markets, a drop in its price could have pushed down other cryptocurrencies.

Mr. Bankman-Fried denied the claims in the Signal messages and in a statement to the Journal.

The confrontation shows the scale of the jitters in the crypto market as FTX was fighting for survival and investors worried about potential contagion. It also underscores the unconventional business practices in the crypto market. Such a chat group would be unthinkable in the world of traditional exchanges, due to concerns about collusion and potential antitrust violations.

—Alexander Osipovich and Alexander Saeedy contributed to this article.

Write to Paul Kiernan at [email protected] and Caitlin Ostroff at [email protected]