(Bloomberg) — Advisors now overseeing the ruins of Sam Bankman-Fried’s FTX Group are fighting to find the company’s cash and crypto holdings, criticizing poor internal oversight and record-keeping at the now-bankrupt company.
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“Never in my career have I seen such a complete failure of corporate control and such a complete absence of reliable financial information,” said John J. Ray III, the group’s new chief executive who previously led the winding-up of Enron Corp., in an affidavit filed in bankruptcy court.
For the full statement filed in FTX’s bankruptcy case, click here
Read the craziest parts of the new bankruptcy filing
“From compromised systems integrity and flawed regulatory oversight overseas to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented,” he added.
The documents depict a free-running crypto enterprise devoid of almost any policy and practice that would be the norm for almost any other corporation. Sloppy record-keeping and a lack of organization will make it even more challenging for dozens of FTX advisers working around the clock to recover billions of dollars owed by clients.
Ray pulled no punches in the statement, calling Bankman-Fried’s recent public statements “inconsistent and misleading.” In their attempts to round up FTX’s money, the advisers told the financial institutions to freeze withdrawals and reject any instructions from Bankman-Fried.
Counselors have found “only a fraction” of the digital assets they hope to recover during Chapter 11 bankruptcy, Ray said. So far, they have secured about $740 million of cryptocurrency in offline cold wallets, a storage method designed to prevent hacks.
The company’s audited financial statements should not be trusted, Ray said. Advisers are working to restore balance sheets for FTX entities from the bottom up, he added.
According to Ray, FTX “failed to maintain centralized control over its money” and failed to maintain an accurate list of bank accounts and account signatories or to pay sufficient attention to the creditworthiness of banking partners. Counselors do not yet know how much money the company had when it filed for bankruptcy, but so far they have found about $560 million attributed to various FTX entities.
Among the troubling allegations in the filing: the software was allegedly used to conceal the misuse of customer funds; Alameda was secretly exempted from certain aspects of FTX.com’s commercial policies; and a single, unsecured group email was used to access private keys and sensitive data around the world, according to court documents.
Ray also noted that it is difficult to find long-lasting records of decision-making: Bankman-Fried often communicates through applications that are automatically deleted on short notice, and asks employees to do the same.
FTX Group’s corporate funds were used to purchase housing and other personal items for employees, Ray said. Some of the real estate was registered in the personal names of FTX employees and advisers, he wrote, and the company’s disbursement control was not good for business.
“For example, FTX Group employees submitted payment requests through an online ‘chat’ platform where a different group of supervisors approved payments by responding with personalized emoticons,” the statement said.
A footnote in the filings shows that Alameda Research Ltd., a subsidiary of the crypto trading house, had lent $1 billion to Bankman-Fried and more than $500 million to FTX co-founder Nishad Singh as of Sept. 30. The financial statements detailing the transactions were unaudited, made while Bankman-Fried controlled the business, and Ray stressed he had no confidence in their accuracy.
FTX is now battling Bankman-Fried over whether its empire should be under the jurisdiction of US courts, where more than 100 related companies are in bankruptcy, or in the Bahamas, its preferred location. FTX’s legal team blamed the collapse in part on poor oversight by non-US regulators.
The case is FTX Trading Ltd., 22-11068, U.S. Bankruptcy Court for the District of Delaware.
(Updates with additional information from the bankruptcy court filing throughout)
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