[The Epoch Times, November 18, 2022](Reported by Epoch Times reporter Gao Sugi) Earlier on Thursday (November 17), FTX CEO Ray submitted a document to the Delaware bankruptcy court. It revealed a lot of amazing inside information about the company, one of the largest cryptocurrency exchanges in the world.
Cryptocurrency exchange FTX officially filed for bankruptcy on November 11. John Ray III, who helped navigate Enron through bankruptcy, took over the helm. He was no shy about the state of the company, and the behavior of its former executive team, describing it as one of the worst he had ever encountered. That’s a scathing comment from a man with 40 years of legal and bankruptcy restructuring experience.
Below are some of the most significant information presented in Ray’s filing.
1. Complete lack of financial and management control of the company
In his filing, Wray begins by attacking former FTX management, including former CEO Sam Bankman-Fried. Because the company’s leadership failed to even discover and resolve a staggering, multibillion-dollar loophole in the balance sheet between Alameda Research and FTX.
Investors in the cryptocurrency exchange may have lost as much as $8 billion. But because the company’s accounting, auditing and payment systems are almost non-existent or flawed, it will “take some time” for Ray and his forensic investigators to uncover the truth.
“Never in my career have I seen such a complete failure of control over a business and such a complete lack of reliable financial information like what happened here,” Ray said.
2. The accounting system that cuts corners requires forensic analysis and auditing
The new head of FTX said he has “substantial” concerns about the company’s financials filed with the court. FTX’s internal debacle exposed a huge hole in the company’s balance sheet. But Ray said that until the blockchain analysis and forensic accounting audit were completed, it was “inappropriate for stakeholders or the courts to rely” on the financial figures presented.
Accurate financial data is a key indicator for valuing and investing in companies. Previously, venture capital firms had poured billions of dollars into the cover of Bankman-Fried and his companies, valuing them at tens of billions of dollars.
Ray also pointed out that the financial statements of many of FTX’s subsidiaries are also unreliable. That raises new questions about the due diligence previously conducted by some of the world‘s largest venture capital firms.
“I don’t think it’s appropriate for stakeholders or the courts to use audited financial statements as a reliable indicator of the financial health of these (companies),” Ray said.
3. Penthouses, Allowances and Personal Effects
Wray’s documents show that FTX treated its employees in the Bahamas as lavish. Company funds are used to buy homes for employees and consultants, sometimes in their own names. Unlike similar typical arrangements at other companies, there is no record that FTX made loans to these individuals. Instead, according to Ray, some individuals were given deeds to the properties directly, and for free.
Notably, Bankman-Fried’s $40 million penthouse was briefly listed for sale after FTX declared bankruptcy. But since then, it has been removed from the list of publicly listed properties.
“As far as I know, in the Bahamas, FTX Group corporate funds were used to purchase residences and other personal items for employees and consultants,” Ray said. “As far as I know, some of these transactions appear to have no documentation of the loans. Certain real estate is recorded in the individual names of these employees and consultants.”
4. Approve spending with emojis
While the industry as a whole works on expense control and reimbursement, Bankman-Fried’s team uses an internal communications platform to distribute company funds to employees around the world. It is unclear what platform FTX is using, although some reports suggest the company has previously used Slack for internal communications.
“The debtor did not have the kind of control over expenses that I would consider appropriate for a commercial enterprise,” Ray said. For example, FTX Group employees could submit expense payment requests through an online ‘chat’ platform. Some executives, Payments can be approved simply by replying with a very personalized emoji.”
5. Bankman-Fried’s Alameda Benefits
Unacceptable management practices within FTX also included use of unsecured group emails to access confidential private keys and extremely sensitive data; failure to reconcile positions on the blockchain daily; use of software to mask misuse of client funds; Secret exemption of Alameda from certain rules of FTX.com’s automated liquidation agreement; and lack of independent management, among other things.
Alameda Research, the secretive trading firm at the heart of former FTX CEO Bankman Fried’s cryptocurrency financial empire, executes trades on FTX along with other institutions and individual traders. However, given Wray’s announcement that Alameda was secretly exempted from “certain rules” by FTX, it is clear that the relationship between FTX and Alameda is stronger than what Bankman-Fried has publicly acknowledged. for close.
Responsible Editor: Ye Ziwei#