The restructuring official charged with overseeing FTX’s bankruptcy proceedings said in a court filing that he has never in his career seen “such a complete failure of corporate controls.”
“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,” said John J. Ray III, who previously oversaw the liquidation of Enron.
Ray was appointed CEO of FTX when the crypto exchange filed for bankruptcy last Friday, and its founder, Sam Bankman-Fried, stepped down from the role. The collapse of Bankman-Fried’s empire, which included his now-bankrupt Alameda Research hedge fund, has rattled the entire ecosystem for digital assets and sparked a contagion among crypto firms who have been forced to halt withdrawals and may be filing for bankruptcy themselves.
In the court filing Thursday, Ray laid out a number of problems with the financial statements prepared by FTX and Alameda under Bankman-Fried’s reign.
To the best of his knowledge, he said, none of the financial statements have been audited and he doesn’t have confidence in their accuracy. In the case of at least one FTX affiliate, Island Bay Ventures, Ray wasn’t able to locate any financial statements.
Many of the companies in the FTX Group “did not have appropriate corporate governance,” and some “never had board meetings,” the filing said.
FTX also lacked centralized control of its cash. The mismanagement of funds was so poor under Bankman-Fried that the new management does not yet know how much cash FTX Group holds.
Other procedural failures include “the absence of an accurate list of bank accounts and account signatories, as well as insufficient attention to the creditworthiness of banking partners.”
Further, Ray said that corporate funds were used to purchase homes and other personal items for employees and advisers in the Bahamas, where FTX was based.
“There does not appear to be documentation for certain of these transactions as loans,” Ray said.