New Chief Calls FTX’s Corporate Control a ‘Complete Failure’
John J. Ray III, the new chief executive of the collapsed cryptocurrency exchange FTX, said in a bankruptcy filing on Thursday that he had never seen “such a complete failure of corporate control” in his career working with distressed companies.
Mr. Ray helped manage Enron after its collapse in an accounting fraud scandal in 2001. But the corporate dysfunction at FTX, he said, appears to be even worse.
“From compromised systems integrity and faulty regulatory oversight abroad, 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 wrote in the filing.
FTX collapsed last week after a run on deposits exposed a deep financial hole in the business. Last Friday, the company filed for bankruptcy, and its chief executive, Sam Bankman-Fried, resigned. The collapse has kicked off a series of investigations focused on whether FTX improperly used customer funds to prop up Alameda Research, a trading firm that Mr. Bankman-Fried also founded.
In a blistering court filing, Mr. Ray described an astonishing level of corporate disarray. He listed a series of “unacceptable management practices,” including the use of an unsecured group email to access sensitive data and the use of software to “conceal the misuse of customer funds.” He said there was “an absence of independent governance” between FTX and Alameda, which was owned almost entirely by Mr. Bankman-Fried.
He said he could not trust that financial statements assembled by Mr. Bankman-Fried were accurate. “The FTX Group did not keep appropriate books and records, or security controls, with respect to its digital assets,” he wrote.
Mr. Ray said the company’s human resources department was so disorganized that his team has been unable to prepare a complete list of who worked at FTX. And he said corporate funds were used to buy homes and other personal items for employees and advisers, without proper documentation.
According to the filing, FTX lacked lasting records of corporate decisions, partly because Mr. Bankman-Fried relied on communications platforms that were set to automatically delete messages after a short time.
Since resigning, Mr. Bankman-Fried has started to speak more publicly about the collapse of his company. In an interview with The New York Times on Sunday, he claimed that he was unaware of how much money Alameda had borrowed from FTX. Later, in series of Twitter messages to a reporter at Vox, he said regulators “make everything worse.”
The filing went to great lengths to distance FTX’s current leadership from the former chief executive, who is in the Bahamas. “Mr. Bankman-Fried is not employed by the Debtors and does not speak for them,” the filing said, calling his public statements “erratic and misleading.”
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