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Sam Bankman-Fried's failed FTX business empire misused customer funds and lacked trustworthy financial statements or any real internal controls, according to the new boss of the collapsed $32 billion crypto exchange.
John Ray III, a veteran insolvency professional who oversaw the liquidation of Enron, said in a US court filing on Thursday that FTX was the worst case of corporate failure that he had seen in his more than 40-year career.
"Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here," he wrote.
The statement underlined the chaos and mismanagement at the heart of what was once a leading crypto industry player with deep ties in Washington DC. The demise of Bankman-Fried's FTX empire has plunged crypto markets into a crisis. Bankman-Fried did not immediately respond to a request for comment on the new filing.
Ray said he had found at FTX international, FTX US and Bankman-Fried's Alameda Research trading company "compromised systems integrity," "faulty regulatory oversight," and a "concentration of control in the hands of a very small group of inexperienced, unsophisticated, and potentially compromised individuals."
The scathing filing in the federal bankruptcy court in Delaware painted a picture of severe mismanagement by Bankman-Fried at FTX, a company that raised billions of dollars from top-tier venture capital investors such as Sequoia, SoftBank and Temasek.
FTX failed to keep proper books, records, or security controls for the digital assets it held for customers; used software to "conceal the misuse of customer funds"; and gave special treatment to Alameda, said Ray, adding that "the debtors do not have an accounting department and outsource this function."
He said the company did not have "an accurate list" of its own bank accounts, or even a complete record of the people who worked for FTX. He added that FTX used "an unsecured group email account" to manage the security keys for its digital assets.
(Score: 3, Interesting) by khallow on Friday November 18 2022, @06:00AM (3 children)
So basically a three year old company, really named "FTX", got handed a bunch of cryptocurrency assets and has since gone bankrupt. Says some ugly things about the acumen of the involved traders/investors. Similarly, I see that the CEO repeatedly mentioned for his heavy participation in these shenanigans, Sam Bankman-Fried, was born in 1992. He would have been 27 when the company was started. Reading on, he spent four years at a "proprietary trading firm" (trades securities with the firm's own currency), started up Alameda Research, a qualitative trading firm, scored big on bitcoin arbitrage between Japanese and US markets, and founded FTX in 2019. By now, FTX was managed by a trader with barely nine years of experience in the industry and little experience running a large firm.
Finally, it's a derivatives business. I wouldn't be surprised to find that they were massively leveraged with a huge amount of liability per asset owned. Nobody who knows enough about that is commenting, but it's almost a guarantee given how little care the whole community put towards any sort of accounting integrity.
Tell me if you start getting surprised. I'll slow down.
This is classic economic bubble behavior - a complete acceptance of huge levels of risk. I'm sure the reasoning is that crypto buyers figured that some of it would be fraudulent/risky, but enough would be legit/safe that they would get massively wealthy all the same.
(Score: 5, Insightful) by driverless on Friday November 18 2022, @06:55AM (1 child)
Not surprised at all, I'm more surprised that some of these things are still around. You see, when you take all the controls and regulation and checks and balances and legal precedent and long list of other stuff that were added to the banking system over the years not because it was fun but because they were needed to control errors and mistakes and a million types of fraud, and decide you can do better and invent your own not-really-a-bank with no controls or checks and balances or anything else and equally little actual knowledge of what it takes to make a financial exchange work, the only real surprise is that it didn't collapse quicker than it actually did.
(Score: 1) by khallow on Friday November 18 2022, @01:44PM
There are several things I find interesting about the crypto markets. This lack of regulation is one of those things. My take is that we're already seeing some private-side regulation to control the problems you describe. The catch is that in a bubble economy, there are a bunch of participants who aren't interested in investing in or using those.
We'll just have to see how things evolve.
(Score: 0) by Anonymous Coward on Saturday November 19 2022, @07:06PM
FTX crypto executive 28 yo Caroline Ellison [theguardian.com]:
Is this what L Ron Mush would consider "hardcore"? Ultra protein breakfast and a power nap, before disrupting the major world economies and reimagining the entire federal government no doubt.
Hardcore...? Hard time more likely. With vicious power struggles for the ranks, as requested.