Advisors overseeing the ruins of Sam Bankman-Fried’s FTX group are struggling to locate the company’s cash and cryptos, accusing the now-bankrupt company of poor internal oversight and record-keeping.
Never in my career have I seen such a complete failure of corporate controls and a complete lack of trustworthy financial information,” said John J. Ray III, the group’s new chief executive officer, who formerly oversaw Enron’s liquidation, in a bankruptcy court affidavit .
“From the compromised system integrity and flawed regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, inexperienced and potentially vulnerable individuals, this situation is unprecedented,” he added.
The documents show a free-running crypto company without virtually any policies and practices that would be the norm for almost any other company. Sloppy record keeping and a lack of organization will make it even more difficult for numerous FTX advisors working around the clock to collect billions of dollars owed to clients.
Mr Ray didn’t pull any punches in the statement, calling Mr Bankman-Fried’s recent public statements “irregular and misleading”. In their attempts to round up FTX’s cash, advisers have ordered financial institutions to freeze withdrawals and reject all of Mr Bankman-Fried’s orders.
Advisors have located “only a fraction” of the digital assets they hope to recover during Chapter 11 bankruptcy, Mr Ray said. They have so far secured around $740 million in cryptocurrency in offline cold wallets, a storage method designed to prevent hacks.
The company’s audited financial statements should not be trusted, Mr. Ray said. Advisors are working to rebuild balance sheets for FTX companies from the ground up, he added.
FTX “did not maintain centralized control of its cash” and did not maintain an accurate list of bank accounts and account signers, or pay adequate attention to the creditworthiness of banking partners, according to Ray. Advisors don’t yet know how much cash the company had when it filed for bankruptcy, but so far have found about $560 million attributable to various FTX entities.
Among the alarming claims in the filing: software was allegedly used to conceal the misuse of customer funds; Alameda has been secretly exempted from some aspects of FTX.com’s trading policy; and a single, unsecured group email was used to access private keys and sensitive data around the world, according to the court documents.
Mr Ray also noted that permanent records of decision making are difficult to come by. Mr. Bankman-Fried often communicated about applications being automatically deleted in a short period of time and urged employees to do the same.
FTX Group company funds were used to buy homes and other personal items for employees, Mr Ray said. Some of the properties are in the personal names of employees and FTX advisors, he wrote, and the company’s payout controls are not appropriate for a company.
“For example, employees at FTX Group submitted payment requests through an online chat platform, where a diverse group of managers approved withdrawals by responding with personalized emojis,” the statement said.
A footnote in the documents indicates that Alameda Research, a subsidiary of the crypto trading house, had loaned Mr. Bankman-Fried $1 billion and FTX co-founder Nishad Singh more than $500 million as of Sept. 30.
The financial reports detailing the transactions were unaudited and were prepared while Mr. Bankman-Fried controlled the transaction and Mr. Ray stressed that he had no confidence in their accuracy.
FTX is now arguing with Mr. Bankman-Fried over whether his empire should fall under the jurisdiction of US courts, where more than 100 affiliates are in bankruptcy, or in the Bahamas, his preferred location. FTX’s legal team has attributed the meltdown in part to poor oversight by non-US regulators.
https://www.independent.ie/business/world/ftx-bankruptcy-advisers-cant-find-missing-cash-at-bust-crypto-firm-42153597.html FTX bankruptcy advisors can’t find missing cash from bankrupt crypto firm