The new CEO of FTX, who has 40 years of experience in some of the biggest bankruptcies in history, including Enron's, said in court documents filed on November 17 that he had never seen anything as bad as FTX.
- FTX lacked adequate human resources, cybersecurity, accounting, and auditing teams, said Ray, who led the restructuring of Enron.
- In the court filing, Ray has uncovered four business silos as well as the software used for the concealment of misuse of corporate funds.
- The corporate funds used to buy homes and personal items in the Bahamas, the new CEO said.
- Alameda Research lent $3.3 billion to Sam Bankman-Fried and the entities he controlled.
- In a recent interview, FTX founder Bankman-Fried said the chaos could have been avoided if FTX had not declared bankruptcy.
Intentional Concealment of Finances
John J. Ray III was appointed the new chief executive of the failed exchange just before the company filed for Chapter 11 bankruptcy. He slammed his predecessor in court documents filed during the bankruptcy proceedings of the exchange. He said FTX suffered a “complete failure of corporate controls” to a degree that he had never before seen in his career.
In his efforts to restructure the company, Ray identified four “business silos” comprised of many dozens of companies lacking standard organization. “Many of the companies in the FTX Group…did not have appropriate corporate governance,” said Ray.
In addition, FTX "did not keep appropriate books and records or security controls" for its digital assets, used unsecured shared email accounts to access private keys, and cannot provide a list of those employed by the company as of Nov. 11.
Funds Were Used To Buy Personal Items
Moreover, Ray found software designed to conceal the "misuse of corporate funds," a failure to reconcile blockchain positions daily, and a lack of independent governance between Alameda and the cluster of companies that includes FTX. He said the corporate funds were used to purchase homes and other personal items for employees and advisors in the Bahamas. Alameda Research lent Sam Bankman-Fried and other companies under his control $3.3 billion, according to documents filed.
“Mr. Bankman-Fried, whose connections and financial holdings in the Bahamas remain unclear to me, recently stated to a reporter on Twitter: 'F*** regulators they make everything worse' and suggested the next step for him was to 'win a jurisdictional battle vs. Delaware,'” said Ray.
Bankman-Fried Shifts Blame
Amid the chaos, Bankman-Fried claimed that his biggest mistake in the debacle was his decision to file bankruptcy, which he blames on pressure from others. In a recent interview, he claimed if he hadn’t filed, “withdrawals would be opening up in a month with customers fully whole.”
The former CEO also criticized regulators, stating that they don’t differentiate between good and bad. Instead, they “make everything worse” because their method of control is “just ‘do more business’ vs ‘do less business’ and ‘put up more moats’ vs ‘put up fewer moats.’”
According to the interview, one thing he would have done differently would have been to implement “more careful accounting + offboard Alameda from FTX once FTX could live on its own.”
The Bottom Line
Ray confirmed that Bankman-Fried is currently in the Bahamas. The reorganization of FTX will challenge the new CEO as he unweaves the web of companies and hidden information. Meanwhile, crypto’s total market cap has dropped below $1 trillion in the wake of the FTX collapse.