Most Read by Bloomberg “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of reliable financial information,” said John J. Ray III, the new chief executive of the group that previously oversaw the Enron Corp. liquidation. affidavit filed in bankruptcy court. For the full statement filed in FTX’s bankruptcy case, click here Read the craziest parts of the new bankruptcy “From the compromised integrity of systems and flawed regulatory oversight overseas, to the concentration of control in the hands of a very small group of inexperienced, unskilled and potentially compromised individuals, this situation is unprecedented,” he added. The documents depict a free-flowing crypto business without virtually any policies and practices that would be the norm for almost all other companies. Additionally, they will likely help fuel any criminal and regulatory action against Bankman-Fried, with FTX already facing an investigation by US prosecutors. Bankman-Fried did not immediately respond to a request seeking comment. Slippery record keeping and lack of organization will make it even more difficult for many FTX advisors working around the clock to recover billions of dollars owed to clients. Ray pulled no punches in the statement, calling Bankman-Fried’s recent public statements “erratic and misleading.” In their efforts to collect FTX’s cash, advisers told financial institutions to freeze withdrawals and reject any instructions from Bankman-Fried. The story continues The advisers have identified “only a fraction” of the digital assets they hope to recover during Chapter 11 bankruptcy, Ray said. So far they have secured about $740 million worth of cryptocurrency in offline cold wallets, a storage method designed to prevent hacks. The company’s audited financial statements — some of which were done by a firm that touted itself as the first CPA to open an office in the metaverse — shouldn’t be trusted, Ray said. Advisers are working to rebuild balance sheets for FTX entities from the bottom up, he added. FTX “failed to maintain central control of its cash” and failed to keep an accurate list of bank accounts and account signatories or pay sufficient attention to the creditworthiness of bank partners, according to Ray. Counselors do not yet know how much cash the company had when it filed for bankruptcy, but they have found about $560 million attributed to various FTX entities so far. The company’s record-keeping was so lax, Ray said, that consultants “were unable to prepare a complete list of who worked for FTX Group as of the reporting date or their terms of employment.” Among other troubling allegations in the filing: software was allegedly used to hide the misappropriation of client funds. Alameda Research, Bankman-Fried’s trading firm, secretly opted out of certain aspects of FTX.com’s trading policies. and a single, unsecured group email was used to access private keys and sensitive data around the world, according to court documents. Ray also noted that permanent records of decision-making are hard to find: Bankman-Fried often communicated through apps that automatically deleted themselves after a short period of time, and asked employees to do the same. FTX Group’s corporate funds were used to buy homes and other personal items for employees, Ray said. Some of the properties were registered in the personal names of FTX employees and consultants, he wrote, and the company’s disbursement checks were not appropriate for a business. “For example, FTX Group employees submitted payment requests through an online ‘chat’ platform where a disparate group of supervisors approved disbursements by responding with personalized emojis,” according to the statement. A footnote in the documents shows that Alameda Research Ltd., a subsidiary of the crypto house, had loaned $1 billion to Bankman-Fried and more than $500 million to FTX co-founder Nishad Singh on September 30. The financial reports detailing the transactions were unaudited, produced while Bankman-Fried controlled the business, and Ray stressed he has no confidence in their accuracy. FTX is now battling Bankman-Fried over whether his empire should be under the jurisdiction of US courts, where more than 100 related companies are in bankruptcy, or in the Bahamas, his preferred location. FTX’s legal team has blamed the collapse in part on poor oversight by non-US regulators. The case is FTX Trading Ltd., 22-11068, U.S. Bankruptcy Court for the District of Delaware. –With help from Kyle Kim. (Updates paragraph 11 with details of advisors’ failure to identify FTX employees) Most Read by Bloomberg Businessweek ©2022 Bloomberg LP
