As the House Financial Services Committee tried to get to the bottom of what went wrong in the lead-up to the collapse of FTX, some lawmakers pressed CEO John Ray III about what legislation governing cryptocurrency exchanges should include.

Record-keeping requirements, corporate controls and keeping customer funds separate are essential safeguards for financial entities, Ray said at the hearing Tuesday. His testimony came hours after former CEO Sam Bankman-Fried was arrested in the Bahamas and charged in the U.S. with eight counts of criminal conspiracy and fraud. The Securities and Exchange Commission and Commodity Futures Trading Commission also brought charges.

Bankman-Fried had been scheduled to testify to the committee Tuesday until his arrest. 

“Dealing with people’s money and their assets, my basic observation is you need records, you need controls and you need to segregate people’s money,” Ray said, adding that he was stunned by the complete lack of record-keeping at the company. Ray took over as CEO in the wake of the company’s collapse and Bankman-Fried’s resignation in early November.

“The FTX Group is unusual in the sense that I’ve done probably a dozen large-scale bankruptcies in my career, including Enron. Every one of those entities has some financial problems or some characteristics that are common. This one is unusual, and it’s unusual in the sense that literally there’s no record-keeping whatsoever,” Ray said.

Employees communicated invoices and expenses over Slack, an office messaging system, and used the software tool QuickBooks for accounting, he said. 

“Nothing against QuickBooks. It’s a very nice tool, just not for a multibillion-dollar company,” Ray said, adding that the lack of record-keeping was complicated by the nature of cryptocurrency. 

“It’s made all more complex because we’re not dealing with widgets or something that’s tangible. We’re dealing with crypto, and the technological issues are made worse,” he said. “It is different from the other bankruptcies because it’s not a plane, not a boat, it’s a crypto asset. It has inherently some difficulties. The assets can be taken or lost.”

Ray detailed the company’s lax security over assets. The company relied on so-called hot wallets, which can be vulnerable to hacking. Keys weren’t kept in a centralized location. Passwords were sometimes kept in plain text format. It’s still not clear where all of the wallets storing the assets are, Ray said. 

The CFTC said Tuesday that more than $8 billion in customer deposits are missing.

“The questions that we have are where are the assets?” Ray said. “How do we locate the assets? It’s a mining exercise at this point. At the end of the day, we’re not going to be able to recover all the losses here. Money was spent that we’ll never get back.” 

The company has recovered more than $1 billion in assets and moved them to cold wallets, he said. 

“This company was uniquely positioned to fail. The lack of discipline on control of the wallets, their storage, the storage of passwords, allowing multiple users to set up accounts almost created an environment where there wasn’t a complete inventory of wallets,” he said. “You can learn lessons from that. You need to have more controls, more discipline, more centralized accounting functions, more oversight and management.”

Rep. Brad Sherman, D-Calif., a critic of cryptocurrency, seized on the collapse as an opportunity to urge colleagues to abandon legislation favored by Bankman-Fried. The disgraced CEO supported designating the CFTC as the primary regulator of cryptocurrency spot markets. 

“Now Sam Bankman-Fried — or should I say in inmate 14-372 — had one purpose in all his efforts here in Congress. He was a well-known figure, the only one wearing shorts. His one purpose was to keep the SEC out of crypto to provide a patina of regulation, baby regulation from the CFTC,” Sherman said. “I have one comment for my colleagues: Don’t trash Sam Bankman-Fried and then pass his bill.”

Bankman-Fried supported a bill introduced by Senate Agriculture Chairwoman Debbie Stabenow, D-Mich., and co-sponsored by ranking member John Boozman, R-Ark., that would allow the CFTC oversight of spot markets for cryptocurrencies deemed commodities, including bitcoin and ether. The legislation’s sponsors have rejected the characterization of it as Bankman-Fried’s bill. 

“My fear is that we will view Sam Bankman-Fried as just one big snake in a crypto Garden of Eden and the fact is, crypto is a garden of snakes,” Sherman said. 

Republicans and some Democrats sought to place blame on the SEC for missing the signs of FTX’s alleged fraud. The trading platform largely operated outside of the country, but raised $1.1 billion from U.S. investors, according to charges filed by the SEC.  

“We know SEC Chair [Gary] Gensler’s regulation-by-enforcement-only approach is not going to stop bad actors,” Rep. Patrick T. McHenry, R-N.C., said. “Next year, I look forward to hearing from Mr. Gensler early and often on how we can provide clarity on the application of our securities laws to trading platforms — which he has failed to do.”

McHenry, the committee’s ranking member, is expected to take over as chairman next Congress. The committee will work toward a “legislative outcome” to prevent another FTX collapse, he said. 

Rep. Josh Gottheimer, D-N.J., also blamed the SEC. 

“SEC Chairman Gensler has repeatedly claimed that most cryptocurrencies are covered by existing securities. Despite that, the SEC has not proposed a single rule to create guardrails for digital assets and has done a haphazard job of overseeing the space,” he said. “They failed to do their job and failed to protect consumers. It’s time for the SEC to step up and do its job or another regulator should take the lead.”