FTX’s new Chief Executive, John Ray III, has made some revelations during his testimony to the US House Financials Committee, which is conducting a hearing into the exchange’s unprecedented collapse.
One of the most concerning statements made by Ray during the testimony was that FTX stored private keys to crypto wallets without encryption, leaving customer funds worth millions vulnerable to theft and other malicious activities.
However, he added that the new management had taken concrete steps to secure over $1 billion worth of digital assets since taking over. Private keys allow users to access their funds held in crypto wallets and must be stored securely on systems that leverage encryption. According to security analysts, storing these keys in an unencrypted mechanism leaves them vulnerable to hackers or unauthorized transfers.
These unsecured funds could have been stolen in a number of ways, where hackers could obtain private keys through phishing or simply hacking the system.
FTX exchange wallets had, in November, faced a significant hack, with estimates by security firms Peckshield and Halborn stating that the exchange was compromised, losing an estimated $400 million. While the hacker’s identity is still unknown, Bankman-Fried spoke of “disgruntled employees and other bad actors” who may have stolen the private keys.
Bankman-Fried is accused of using customer funds to cover losses incurred by sister concern Alameda Research; the independent crypto hedge fund also helmed by SBF. Additionally, prosecutors also accused him of violating campaign finance laws by using customer funds to make millions worth of illegal political donations. Ray called these revelations “old-fashioned embezzlement,” stating,
Ray also stated that the exchange did not have a complete inventory of their crypto wallets nor any record of their location. He further added that the company was using QuickBooks for accounting.
Ray also told the committee that they were actively tracking the $477 million worth of crypto stolen from FTX on the 12th of November.
Meanwhile, a court in the Bahamas directed authorities to take Bankman-Fried into custody, with the ex-CEO likely to be extradited to the United States of America next year. The judge chose to ignore requests that SBF remains free on bail so that he can stick to his vegan diet and also have access to his allergy medicines and prescription Adderall.