Highlights From FTX CEO’s Latest Bankruptcy Filing: “A Failure of Corporate Controls”

John Ray, III, the new CEO of FTX, has filed his declaration of support in the defunct exchange’s bankruptcy proceedings. 

The new executive revealed numerous details about the internal operations of FTX, and the true state of its financials.

Abysmal Accounting at FTX

Within the filing, Ray cited experience in legal restructuring for some of history’s largest corporate failures, including Enron and Nortel. Both companies were well-known for their financial mismanagement and fraudulent accounting practices among executives. 

However, even he was caught off guard following a week-long attempt to gather debtors’ assets and sort through its financial records. 

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” Ray wrote. “This situation is unprecedented.” 

FTX had poor regulatory oversight, systems integrity, and “concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals,” according to the CEO. 

As FTX experienced overwhelming withdrawal demand last week, its former CEO Sam Bankman-Fried said over Twitter that all customer assets were fully backed. However, in an apology thread days later, he said he was “substantially off on [his] sense of users’ margin,” due to “poor internal labeling of bank-related accounts.”

Bankman-Fried claimed on Tuesday that the company held roughly $5.5 billion in “semi-liquid” assets. However, his replacement CEO said in his filing that FTX-held crypto assets reached $659,000 as of September 30. The company held no Bitcoin on its balance sheet – the largest cryptocurrency by market cap. 

Relationship With Alameda

By contrast, Alameda Research was reportedly one of the world’s largest hedge funds by September’s end. It held $13.46 billion in assets on its balance sheet, rivaling the AUM of famous hedge fund managers like Paul Tudor Jones. 

Nevertheless, to Ray’s knowledge, none of Alameda’s quarterly financial statements had ever went through auditing. “I do not have confidence in [the balance sheet] and the information therein may not be correct,” he said.

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FTX may have included a “secret exemption” of Alameda from its auto-liquidation protocol, giving the business an unfair trading edge. Alameda also made $4.1 billion in loans to Bankman-Fried and his partners. By September’s end, these loans remained outstanding. 

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