Advisers find ‘only a fraction’ of FTX’s crypto assets
Advisers overseeing the ruins of Sam BankmanFried’s FTX Group are struggling to locate the company’s cash and crypto, slamming poor internal oversight and record keeping at the now-bankrupt company.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information,” John J. Ray III, the group’s new chief executive officer said in a sworn declaration submitted in bankruptcy court. Ray oversaw the liquidation of Enron Corp.
“From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented,” he added.
The documents depict a free-wheeling crypto enterprise devoid of virtually every policy and practice that would be the norm for almost any other corporation. The slipshod recordkeeping and lack of organization will make it even more challenging for scores of FTX advisers working around the clock to recover billions of dollars that customers are owed.
Ray pulled no punches in the declaration, calling Bankman-Fried’s recent public statements “erratic and misleading.” In their attempts to round up FTX’s cash, advisers have told financial institutions to freeze withdrawals and reject any instructions from Bankman-Fried.
Advisers have located “only a fraction” of the digital assets that they hope to recover during the Chapter 11 bankruptcy, Ray said. They’ve so far secured about $740 million of cryptocurrency in offline cold wallets, a storage method designed to prevent hacks.
The company’s audited financial statements should not be trusted, Ray said. Advisers are working to rebuild balance sheets for FTX entities from the bottom up, he added.
FTX “did not maintain centralized 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 banking partners, according to Ray. Advisers don’t yet know how much cash the company had when it filed for bankruptcy but have found about $560 million attributable to various FTX entities so far.
Among the alarming claims in the filing: software was allegedly used to conceal the misuse of customer funds; and a single, unsecured group email was used to access private keys and sensitive data around the world, according to the court documents.
Ray also noted that lasting records of decisionmaking are hard to come by: Bankman-Fried often communicated through applications that auto-deleted in short order and asked employees to do the same.
Corporate funds of FTX
Group were used to buy homes and other personal items for employees, Ray said. Some of the real estate was recorded in the personal names of employees and FTX advisers, he wrote, and the company’s disbursement controls were not appropriate for a business.
“For example, employees of the FTX Group submitted payment requests through an on-line ‘chat’ platform where a disparate
group of supervisors approved disbursements by responding with personalized emojis,” according to the statement.
A footnote in the documents indicates Alameda Research Ltd., a subsidiary of the crypto trading house, had lent $1 billion to Bankman-Fried and more than $500 million to FTX cofounder Nishad Singh as of Sept. 30.