The new bosses of Sam Bankman-Fried’s failed crypto empire FTX have submitted their first report on the state of play at the group – and it doesn’t make for pretty reading.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information,” said John J Ray III, the group’s new chief executive officer, in a declaration submitted in court.
Ray, who also oversaw the liquidation of Enron, has given a detailed account of his findings over the first week in charge, which has involved trying to work out how much cash the company actually has – a task that has proved especially difficult.
Here are six takeaways from the filing.
1. They still can’t find all the money
Ray writes that FTX “did not maintain centralised control of its cash,” as one of several “cash management failures”.
These include “the absence of an accurate list of bank accounts and account signatories, as well as insufficient attention to the creditworthiness of banking partners around the world.”
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Because of this, Ray and his colleagues “do not yet know the exact amount of cash that the FTX Group held as of the Petition Date”.
This is despite the fact that his team includes “business, accounting, forensic, technical and legal resources that I believe are among the best in the world at these activities”.
Elsewhere, Ray writes that the company did not have “appropriate” spending controls, and that employees submitted payment requests through “an online chat platform where a disparate group of supervisors approved disbursements by responding with personalised emojis”.
2. Bankman-Fried lent himself $1bn
Ray reveals that Bankman-Fried himself received a $1bn loan from Alameda Research, his crypto trading firm which was closely entwined with FTX.
Previn Singh, FTX’s former director of engineering — who was part of Bankman-Fried’s close-knit inner circle at the firm — received $543m from Alameda. Ryan Salame, another close advisor who served as co-CEO at FTX Digital Markets, the group’s Bahamas-based unit, received $55m.
3. They still don’t know exactly who worked there
The filing also reveals that the new bosses still haven’t got hold of a list of employees across the group, which “combined employees of various entities and outside contractors, with unclear records and lines of responsibility”.
“At this time, the Debtors have been unable to prepare a complete list of who worked for the FTX Group as of the Petition Date, or the terms of their employment. Repeated attempts to locate certain presumed employees to confirm their status have been unsuccessful to date.”
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4. On SBF’s tweeting
Ray also takes a dim view of Bankman-Fried’s approach to communications, describing his public statements as “erratic and misleading”.
He describes a recent exchange carried out on Twitter with a reporter from media outlet Vox, in which Bankman-Fried said: “F*** regulators they make everything worse” and suggested the next step for him was to “win a jurisdictional battle vs. Delaware”.
“Finally, and critically, the Debtors have made clear to employees and the public that Mr Bankman-Fried is not employed by the Debtors and does not speak for them,” Ray writes.
5. A lack of auditing
Auditing also appears to have been an issue, Ray adds, saying that Alameda Research’s quarterly accounts were never audited. As a result, “I do not have confidence in it and the information therein may not be correct as of the date stated,” he says.
FTX Group did receive audits for some of its companies, but those for FTX.com, the company operating the main FTX crypto exchange, were conducted by Prager Metis, “a firm with which I am not familiar” and says it has a headquarters in the metaverse.
“I have substantial concerns as to the information presented in these audited financial statements,” Rau writes, adding that he does not “believe it appropriate for stakeholders or the court to rely on the audited financial statements” for the companies.
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6. Speaking of Alameda…
Ray also reports a sketchy relationship between FTX and Alameda, citing “unacceptable management practices” such as using an unsecured group email account to access “critically sensitive data” for the company.
He also points to “the use of software to conceal the misuse of customer funds” and the “secret exemption” of Alameda from certain aspects of FTX.com’s auto-liquidation protocols.
“The FTX Group did not keep appropriate books and records, or security controls, with respect to its digital assets.”
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