Sunday Review Business
A new court filing About Sam Bankman-Fried’s bankrupt companies reveals a crypto empire that was colossally mismanaged and potentially fraudulent — a “complete failure of corporate controls” This surpasses the Enron record.
“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,” FTX’s new CEO, John J. Ray III, wrote in a court filing Thursday. He previously oversaw Enron’s liquidation in the 2000s, among other bankruptcy cases.
Ray now oversees an “unprecedented” mess by his own account in the collapse crypto Alameda, its sister hedge-fund Alameda and numerous affiliated entities are all part of the exchange. Ray, a restructuring specialist was appointed CEO by Bankman-Fried almost a week before the group filed Chapter 11.
Ray’s assessment offers one of the first definitive accounts of what went wrong at FTX and Alameda.
The new management found many problems, including unreliable financial statements and mishandling of confidential information (including the use of an unsecured email address to manage private data). crypto Keys) and the use of corporate funds to buy homes in the Bahamas for employees.
According to the filing, FTX also had no central control over its cash. According to the filing, mismanagement Bankman-Fried’s poor management of funds meant that the new management is not aware of how much cash FTX has. Ray and his team have only been able to approximate the amount of cash available — about $564 million.
This is compared to the roughly $8 billion shortfall Bankman-Fried reportedly said last week to investors about FTX.
“There are, at best, signs of just absolute non-control and power in the hands of just a couple of people,” Eric Snyder, who heads Wilk Auslander’s bankruptcy department, stated that he was not involved in the FTX matter. “At worst, there’s a systemic fraud of billions of dollars.”
Bankman-Fried is not being charged with any criminal offenses. His lawyer Martin Flumenbaum didn’t respond to The Sunday Review Business’ request for comment.
In the filing, Ray also sought to distance FTX’s new management team from Bankman-Fried, who he said Continue to make “erratic and misleading” Statements made on Twitter or in statements to journalists
In an interview with Vox over Twitter this week, Bankman-Fried, who’d built a reputation as an advocate for greater regulatory oversight on the industry, told a reporter it was all “just PR.” He also added: “F**ck regulators. They make everything worse.”
Bankman-Fried also taken to Twitter He will share his thoughts about the events of the last week and a quarter, during which his personal fortune, valued at $16million earlier this month, evaporated.
Bankman-Fried retained Paul Weiss, a white-collar attorney to defend him after he lost control of his businesses. Flumenbaum has represented both the sons and daughters of Ponzi schemer Bernie Madoff. He also represented Michael Milken (junk-bond trader) who was sentenced to two years for securities fraud in the 1980s.
According to The Sunday Review, federal prosecutors in the Southern District of New York are looking into the collapse of FTX Trading. Over the weekend, authorities in the Bahamas (where FTX is based) launched a criminal investigation into the company.
In a thread This week Bankman-Fried tweeted more than 30 times. He said that he would continue to try to raise funds for customers. He lamented in one tweet how “once upon a time—a month ago—FTX was a valuable enterprise…and we were held as paragons of running an effective company.”
But Thursday’s filing by FTX’s new CEO paints a starkly different portrait of how the company was run.
One of the most compelling elements of Ray’s assessment points to the “the use of software to conceal the misuse of customer funds,” You can also find out more about a “secret exemption” of Alameda from aspects of FTX’s auto-liquidation protocol.
Although Ray doesn’t explicitly accuse the company of fraud, Snyder says, the document contains what lawyers refer to as “badges,” It.
“When you say you’re using backdoor software to misuse customer funds and exempt one of your major affiliates from an auto-liquidation protocol, those are badges of fraud.”
Auto-liquidation refers to when an exchange like FTX automatically sells traders’ collateral when they fall into the red. Alameda is exempted from this rule because it provides additional protection for high-risk bets.
Ray pointed out that the absence of proper record-keeping was one of the biggest failures. Bankman Fried encouraged staff members to use the auto-delete feature of applications.
Ray noted that the companies did not have enough employees. “disbursement controls,” Noting that some employees at FTX were granted corporate funds to purchase homes in the Bahamas and other personal belongings.
Few of the companies’ financial statements appear to have been audited, and Ray said he doesn’t have confidence in their accuracy. In one example in which an affiliate did receive audit opinions, the assesment came from “a firm with which I am not familiar and whose website indicates that they are the ‘first-ever CPA firm to officially open its Metaverse headquarters in the metaverse platform Decentraland.’ “
Many of the companies that make up the FTX Group are listed here “did not have appropriate corporate governance,” Some and others “never had board meetings,” The filing stated.
Others procedural mistakes include “the absence of an accurate list of bank accounts and account signatories, as well as insufficient attention to the creditworthiness of banking partners.”