Sam Bankman-Fried, who goes by SBF, is at the center of the business scandal of the year. His cryptocurrency exchange FTX blew up suddenly in November, leaving millions of customers in the lurch. Everyone wants answers—including Congress, where SBF was supposed to testify on Tuesday. In a shocking turn of events, he was instead arrested on Monday night by authorities in the Bahamas, where he was residing, at the request of the U.S. government.
With SBF's notable absence, the hearing will likely yield some tough questions from lawmakers, including into the investigation by the U.S. District Court for the Southern District of New York that led to his arrest. It will possibly create some awkward moments for members of Congress themselves, many of whom have been implicated in SBF's web of failure. Here’s what you need to know:
What time is the hearing and how can I watch?
The hearing begins at 10am ET and will be streamed by the House of Representatives on YouTube and broadcast live on CSPAN 3.
Why is Congress holding this hearing?
After years of building up his reputation as the crypto industry’s golden child, Sam Bankman-Fried had a spectacular fall from grace in early November after his exchange, FTX, went bankrupt. It soon emerged that FTX was commingling customer funds with its affiliated trading firm, Alameda Research.
Now, as SBF faces investigations across the globe and criminal charges, Congress is looking to find out how this debacle happened, and what it means for the volatile crypto industry at a time when lawmakers are debating legislation. In the wake of the arrest, they will also want to inquire about the criminal even though details of it are still emerging.
Who is speaking?
With SBF in custody, the only speaker left on the docket is John J. Ray III, a U.S. attorney who famously led the failed energy company Enron through its bankruptcy proceedings.
After SBF resigned in mid-November, Ray took over as the CEO of FTX. Ray has been harsh through court filings about the incompetence of SBF and the previous executive team, declaring that he had never seen “such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”
Ray has already published his planned testimony, which lays out in devastating legalese that FTX and its associated trading firm, Alameda Research, commingled customer funds and lacked basic financial controls.
What will Ray be asked?
The biggest question facing FTX is whether SBF committed fraud by violating the exchange's terms of service and commingling customer funds with the trading bets of Alameda Research—as well as for the empire’s profligate spending, from political donations to sponsorships.
Expect questions for Ray about what really happened in the black box of FTX, and how much SBF—the majority owner of both FTX and Alameda Research—knew what was going on.
What types of charges is SBF facing?
SBF is facing a plethora of charges, with the New York Times reporting that criminal charges include wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy and money laundering. The Securities and Exchange Commission also announced that it has authorized separate charges for violations of securities law.
If prosecutors decide to make him an example, some lawyers have said to look to the most notorious fraudster of the 2000s, Bernie Madoff, who was sentenced to 150 years in federal prison.
What was SBF's relationship with lawmakers?
The other uncomfortable elephant in the room will be SBF's previous prominent stature in Washington. As a major advocate for crypto regulation, SBF was the industry’s face in the capital, frequently meeting with lawmakers and regulators.
In the wake of his descent, there will be probes about SBF's political donations and how much he shaped lawmakers' views on how to approach crypto regulation.
The pro-crypto legislators at the hearing are likely to shoot barbs directed toward Gary Gensler, the chair of the SEC, who many hold accountable for failing to stop the FTX disaster—although the majority of the company’s business operated offshore in the Bahamas.
Will there be more hearings?
The Senate Banking Committee, chaired by Sen. Sherrod Brown (D-Ohio), is scheduled to host its own FTX hearing on Wednesday. Unlike the House Financial Services Committee’s sparse lineup, the Senate Banking Committee has four scheduled witnesses, including O.C. actor-turned-crypto-critic Ben McKenzie—a move that drew some ire on Crypto Twitter. Messari founder Ryan Selkis was particularly peeved:
In the past five years, I built a 150 person data & research company that automates crypto asset disclosures.
— Ryan Selkis 🥷 (@twobitidiot) December 9, 2022
During that time, @ben_mckenzie wrote an anti-Trump off Broadway play that bombed and spoke at SXSW.
Which one of us did Senate Banking invite to testify on crypto?
The Senate Banking Committee had also asked SBF to testify under threat of subpoena, which he declined. After SBF's arrest, that, of course, is no longer relevant.
Waters said in a statement on Monday night that she was disappointed that SBF would not be able to testify and that the American public deserves to hear directly from him, leaving the door open for another hearing down the line.
Why the House Financial Services Committee?
The committee, led by Waters and Ranking Member Patrick McHenry (R-N.C.), has been one of the most vocal for the need for crypto legislation. This includes the draft for a stablecoin bill sponsored by Waters and McHenry, although they never formally introduced it.
With the House shifting leadership and McHenry set to assume the chair position, the House Financial Services Committee is expected to be a leader for long-awaited crypto legislation during the next congressional session.
