Cryptocurrency- Sam Bankman-Fried plans to appear remotely before the House Financial Services Committee on Tuesday.
- The committee has the power to conduct investigations and make referrals to prosecutors.
When Sam Bankman-Fried faces a House panel on Tuesday to explain how his crypto lending company FTX unraveled, he may expect a familiar line of questioning around his companies' finances and accounting protocols.
Lawmakers may press Bankman-Fried on public documents and his own recent statements to the media — such as saying he didn't "knowingly commingle" FTX funds with Alameda Research — which could offer fertile ground for inquiry. An early filing by FTX's current CEO, John J. Ray III, in Delaware bankruptcy court referred to "missing or stolen" assets, and to the company outsourcing its accounting.
The high-profile hearing may offer a window into the kind of rules that lawmakers think the industry should be subject to, attorneys told Insider. The FTX fallout also comes during the so-called crypto winter, a time when other major players like Celsius and Voyager have filed for bankruptcy as customers scramble for recoveries in an unregulated industry.
"What we're starting to see is very inexperienced people leading companies with very little oversight and management," said Greg Rinckey, a former federal prosecutor in Norfolk, Virginia, and partner at the law firm Tully Rinckey PLLC. "Congress is going to be interested in, 'Should there be regulation?'"
The House Financial Services committee has its own investigative mandate, outlined by its role in inquiring into financial failures, and in helping to craft legislation to prevent similar episodes in the future.
The committee's notable hearings on high-profile financial scandals include its inquiries in recent years into practices within Wells Fargo of opening unwanted customer accounts, the Bernie Madoff Ponzi scheme in 2009, and the subprime mortgage crisis a year earlier.
Members of the committee have advanced bills to strengthen protections against insider trading, to restrain banks from imposing excessive overdraft fees, and to support banks in underserved communities, in keeping with a mission to guard the interests of investors and customers.
Participating could expose Bankman-Fried to more legal risks
Testimony provided to House lawmakers would usually be under oath, thought not necessarily so. Regardless, making false or misleading statements to lawmakers in this context could bear legal consequences under laws governing statements made to federal officers, attorneys said.
"Basically, any time you make a false statement to a federal agent or people working for the federal government, you could be prosecuted," said Chris Tracy, partner at Warner Norcross + Judd LLP, who also used to be a federal prosecutor in Chicago.
Although the House committee can't prosecute or sanction potential targets, it can make referrals to enforcement agencies that do, such as the US Department of Justice and its offices in Manhattan that focus on financial crimes.
The committee's referrals following public hearings can carry weight and encourage other witnesses to step forward, said Kevin O'Brien, partner at Ford O'Brien Landy LLP, and a former federal prosecutor in Brooklyn, New York.
House lawmakers' criminal referrals can sometimes be controversial and the subject of extensive deliberations — for instance, the House committee on the Jan. 6 Capitol insurrection has signaled it could potentially bring criminal referrals to federal prosecutors.
"It does lend an imprimatur on the investigation, and it has some force publicly and symbolically," O'Brien said.
The House Financial Services committee, chaired by Democratic Representative Maxine Waters of California, comprises progressive political stars like Alexandria Ocasio-Cortez of New York and Rashida Tlaib of Michigan. Members also include trained lawyers like Gregory Meeks of New York, a former assistant district attorney in Queens, New York.
The legal and political firepower on the committee can lead to more adversarial, investigative lines of questioning than potentially even the media interviews Bankman-Fried has participated in over the past month, attorneys said.
"They know how to ask probing questions, and they have competent staff people working with them, and going through documents very quickly," said Tracy of Warner Norcross + Judd LLP.
Representatives for FTX and Bankman-Fried's last known legal counsel didn't respond to Insider's request for comment. Mr. Bankman-Fried did not respond to a Twitter DM seeking comment.
The House Financial Services committee hearing is scheduled to kick off at 10 a.m. Eastern on Tuesday.