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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: 4, Interesting) by NotSanguine on Friday November 18 2022, @02:50PM (2 children)
While the ideal of decentralized, unhackable currency is a good one, that promise has not been achieved.
Rather, we've lurched from one scam to another by opportunists, whether to straight-up steal from other folks and/or to apply the greater fool theory [investopedia.com] to enrich themselves at the expense of the ignorant.
In fact, the primary viable use case (to this point) for cryptocurrency has been grey/black markets for illegal goods. Bitcoin is no longer viable [wired.com] (if it ever was) for that, so currencies like Monero [monero.how] are picking up that mantle.
Unless and until (as the FTX debacle, among many, many others show) there is reasonable regulation of exchanges and the general knowledge and usable software to make ("not your keys, not your coins" [ledger.com]) private wallets ubiquitous, we're going to continue seeing these kinds of malfeasance/scams as the greater part of the cryptocurrency ecosystem.
But that's a big hill to climb. As an example, the recent NOVA episode [pbs.org] ("Crypto Decoded") clearly shows the dearth of knowledge among the hoi polloi about Cryptocurencies, the history of money and how all this is supposed to (vs. the reality) work.
All that said, it's only been 14 years [wikipedia.org] since Bitcoin became a thing. As such, cryptocurrencies are in their infancy. Will we achieve the promise of (like cash) anonymous, fungible, widely distributed digital money? Eventually, I think so.
For now, however, it's mostly the domain of scammers and black marketeers. I don't see that changing in the near term.
No, no, you're not thinking; you're just being logical. --Niels Bohr
(Score: 4, Interesting) by Thexalon on Saturday November 19 2022, @03:34AM (1 child)
It's not really surprising that it would become popular for illegal goods:
The dream of many a libertarian-driven project is to have life outside of the control of governments. I get it, sometimes the government does things I don't like too. However ...
Do you know who else loves life outside of the control of governments? Criminals! Mob bosses, drug lords, human traffickers, terrorist groups, ransomware rings, etc. So no matter how honest the original intentions, it's going to attract the kind of people you definitely don't want to be interacting with, and whatever it is you're trying to do will soon become a wretched hive of scum and villainy.
And there's good evidence that the original intentions weren't honest at all. The entire value of crypto was built on the "bigger fool" theory, and the dance was to continue to hype how wonderful it was so that some other sucker would be holding it when it crashed. And it's also worth noting that the lack of banking regulations made it really easy for the quasi-banks to simply steal the pseudo-money and sell it off for cash that was actually worth something, which has happened at least a couple of times. The more you look at both how it was designed and how the people heavily involved in it behaved, the more it looked like a good old-fashioned Ponzi scheme, but with computers.
The only thing that stops a bad guy with a compiler is a good guy with a compiler.
(Score: 0) by Anonymous Coward on Sunday November 20 2022, @08:20AM
I am shocked, shocked that the Bahamas are not taking this problem more seriously. Do they not wonder if this will affect their reputation as a legitimate banking destination? With titties and beaches? I ask you.