If you thought the saga behind FTX and Sam Bankman-Fried was over, you thought wrong. The story continues through the federal courts as more evidence comes to light. And boy is the evidence damning in more ways than one. Let’s start from the very beginning of this incredibly enlightening document,
“Failed crypto exchange FTX Trading Ltd lacked fundamental financial and accounting controls, stifled dissent within the company and joked internally about their tendency to lose track of millions of dollars in assets,” according to the new report by the company’s debtors.
What’s in this New Report on FTX?
The report is the first released by FTX debtors since Sam Bankman-Fried’s digital-asset empire rapidly collapsed into bankruptcy in November, with billions of dollars in customer funds lost.
At the root of FTX’s spectacular collapse was “hubris, incompetence, and greed” on the part of Bankman-Fried and top executives, including former engineering director Nishad Singh and former chief technology officer Gary Wang, the report said.
“Despite the public image it sought to create of a responsible business, the FTX Group was tightly controlled by a small group of individuals who showed little interest in instituting an appropriate oversight or control framework,” the report said.
“These individuals stifled dissent, commingled and misused corporate and customer funds, lied to third parties about their business, joked internally about their tendency to lose track of millions of dollars in assets, and thereby caused the FTX Group to collapse as swiftly as it had grown,” the report said.
When FTX filed for Chapter 11, the company didn’t even have a complete list of who its employees were—yes, they did not even know who worked for them, and not in a consultatory way, in a payroll kind of way.
New CEO of FTX Sounds Off
“We are releasing the first report in the spirit of transparency that we promised since the beginning of the Chapter 11 process,” John J. Ray III, FTX’s new chief executive officer and chief restructuring officer, said in a press release.
Despite asset levels of billions of dollars and enormous transaction volumes, FTX “lacked fundamental financial and accounting controls. Reconstruction of the Debtors’ balance sheets is an ongoing, bottom-up exercise that continues to require significant effort by professionals,” the report said.
Confirming the federal courts’ original charges and giving credence to the FBI’s original investigation into SBF and the company.
Digital assets worth more than US$1.4 billion have been recovered and secured in cold storage, the debtors said in the report. They added that an additional US$1.7 billion had been identified and is in the process of being recovered.
“Key executive functions, including those of chief financial officer, chief risk officer, global controller, and chief internal auditor, were missing at some or all critical entities,” the report said. “Nor did the FTX Group have any dedicated financial risk, audit, or treasury departments.”
The debtors said they reviewed over 1 million documents, analyzed the cryptocurrency firm’s available financial records and electronic devices, as well as interviewed 19 employees as it put together the overview of FTX’s control failures.
Bankman-Fried Will Go to Trial in October
Singh pleaded guilty in February to fraud as part of a cooperation deal with prosecutors. Wang and former CEO Caroline Ellison pleaded guilty last year to charges in connection to their roles at FTX and its sister trading house Alameda Research and are working with the government.
All in all, there is still much more to see, read, and watch before we get to what is going to be one widely televised and spoken-about trial in October. I guess we will have to wait for the next season in the FTX saga.
