JohnRay III, the new Chief Executive Officer of the troubled cryptocurrency exchange,FTX, has described the running of the FTX Group under Sam Bankman-Fried, the Co-Founderand former CEO, as “a complete failure of corporate controls.” Ray III also described the business environment under Bankman-Fried as "unprecedented.”
Thenew FTX CEO, who has over 40 years of legal and restructuringexperience, noted that he has been the Chief Restructuring Officer or CEO“in several of the largest corporate failures in history.”
RayIII stated this in a new FTX court filing dated Thursday and presented in theUnited States Bankruptcy Court for the District of Delaware. Ray emergedas the new CEO of the beleaguered crypto exchange last Friday after FTX's liquidity crisis pushed it to file for bankruptcy protection, forcing Bankman-Fried to resign. The FTX Group kicked off voluntaryproceedings under Chapter 11 of the United States Bankruptcy Code in theDistrict of Delaware on the same day.
Inthe new filing, Ray III criticized the governance structure, cash and humanresources management, disbursem*nt controls, record-keeping of digital assetcustody, investment activities and decision-making of the FTX Group under Bankman-Fried.
“Neverin my career have I seen such a complete failure of corporate controls and sucha complete absence of trustworthy financial information as occurred here,” RayIII said, adding “From compromised systems integrity and faulty regulatoryoversight abroad to the concentration of control in the hands of a very smallgroup of inexperienced, unsophisticated and potentially compromisedindividuals, this situation is unprecedented.”
— Genevieve Roch-Decter, CFA (@GRDecter) November 17, 2022I read the 30 page FTX Bankruptcy court filing.
How bad were FTX's internal controls?
Here are the worst examples 👇
‘PervasiveFailures'
Accordingto the new CEO, FTX Trading Limited, the operator of Antigua-incorporated crypto exchange platform FTX.com, the Bahamas-based subsidiary FTX Digital Market, and other companies in the FTX Group “did not have appropriate corporategovernance.” Many of them never held Board meetings, he noted. On top of that, the FTX Group did not maintain centralized control of its cash, Ray III added.
“Cashmanagement procedure failures included the absence of an accurate list of bankaccounts and account signatories, as well as insufficient attention to thecreditworthiness of banking partners across the world,” he further explained.
Furthermore, the new CEO described the absence of lasting records of decision-making as“one of the most pervasive failures of the FTX.com business in particular.”
“MrBankman-Fried often communicated by using applications that were set toauto-delete after a short period of time, and encouraged employees to do thesame,” he noted.
Additionally,Ray III stated that the FTX Group combined employees of its various subsidiaries andoutside contractors “with unclear records and lines of responsibility.” As a result, the firm has been unable to prepare a complete list of employees that worked for the FTX Group up until when it filed for bankruptcy protection. Moreover, it could not determine their terms of employment. "Repeated attempts to locate certain presumed employees to confirm their status have been unsuccessful to date," Ray III said.
Ondisbursem*nt, the Chief Executive noted that many of the subsidiaries didnot have appropriate controls, adding that supervisors approved financial disbursem*ntswith “personalized emojis” through an online ‘chat’ platform.
Furthermore, the new top executive disclosed that corporate funds were used to buy homes and other personal items foremployees and advisors without being documented as loans. He added that“certain real estate was recorded in the personal name of these employees andadvisors on the records of the Bahamas.”
JohnRay III, the new Chief Executive Officer of the troubled cryptocurrency exchange,FTX, has described the running of the FTX Group under Sam Bankman-Fried, the Co-Founderand former CEO, as “a complete failure of corporate controls.” Ray III also described the business environment under Bankman-Fried as "unprecedented.”
Thenew FTX CEO, who has over 40 years of legal and restructuringexperience, noted that he has been the Chief Restructuring Officer or CEO“in several of the largest corporate failures in history.”
RayIII stated this in a new FTX court filing dated Thursday and presented in theUnited States Bankruptcy Court for the District of Delaware. Ray emergedas the new CEO of the beleaguered crypto exchange last Friday after FTX's liquidity crisis pushed it to file for bankruptcy protection, forcing Bankman-Fried to resign. The FTX Group kicked off voluntaryproceedings under Chapter 11 of the United States Bankruptcy Code in theDistrict of Delaware on the same day.
Inthe new filing, Ray III criticized the governance structure, cash and humanresources management, disbursem*nt controls, record-keeping of digital assetcustody, investment activities and decision-making of the FTX Group under Bankman-Fried.
“Neverin my career have I seen such a complete failure of corporate controls and sucha complete absence of trustworthy financial information as occurred here,” RayIII said, adding “From compromised systems integrity and faulty regulatoryoversight abroad to the concentration of control in the hands of a very smallgroup of inexperienced, unsophisticated and potentially compromisedindividuals, this situation is unprecedented.”
— Genevieve Roch-Decter, CFA (@GRDecter) November 17, 2022I read the 30 page FTX Bankruptcy court filing.
How bad were FTX's internal controls?
Here are the worst examples 👇
‘PervasiveFailures'
Accordingto the new CEO, FTX Trading Limited, the operator of Antigua-incorporated crypto exchange platform FTX.com, the Bahamas-based subsidiary FTX Digital Market, and other companies in the FTX Group “did not have appropriate corporategovernance.” Many of them never held Board meetings, he noted. On top of that, the FTX Group did not maintain centralized control of its cash, Ray III added.
“Cashmanagement procedure failures included the absence of an accurate list of bankaccounts and account signatories, as well as insufficient attention to thecreditworthiness of banking partners across the world,” he further explained.
Furthermore, the new CEO described the absence of lasting records of decision-making as“one of the most pervasive failures of the FTX.com business in particular.”
ADVERTIsem*nT
“MrBankman-Fried often communicated by using applications that were set toauto-delete after a short period of time, and encouraged employees to do thesame,” he noted.
Additionally,Ray III stated that the FTX Group combined employees of its various subsidiaries andoutside contractors “with unclear records and lines of responsibility.” As a result, the firm has been unable to prepare a complete list of employees that worked for the FTX Group up until when it filed for bankruptcy protection. Moreover, it could not determine their terms of employment. "Repeated attempts to locate certain presumed employees to confirm their status have been unsuccessful to date," Ray III said.
Ondisbursem*nt, the Chief Executive noted that many of the subsidiaries didnot have appropriate controls, adding that supervisors approved financial disbursem*ntswith “personalized emojis” through an online ‘chat’ platform.
Furthermore, the new top executive disclosed that corporate funds were used to buy homes and other personal items foremployees and advisors without being documented as loans. He added that“certain real estate was recorded in the personal name of these employees andadvisors on the records of the Bahamas.”
