FTX Bankruptcy Filings Rebuke SBF, Slam “Complete Absence of Reliable Financial Information”

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(Kitco News) – A week after former CEO Sam Bankman-Fried announced that FTX was filing for Chapter 11 bankruptcy protection, John J. Ray III, the new CEO of FTX, finally succeeded in filing the declarations of the company’s “first day” in bankruptcy court.

Once the documents were shared with the media, the reasons for the delay became clear: a near total absence of internal controls or documentation for everything from expenses, customer deposits and human resources, which Ray said was unprecedented for more than 40 years. experience in supervising and restructuring large corporate collapses.

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of reliable financial reporting as has happened here,” Ray said. “From the compromised integrity of systems and faulty 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. ”

Among the weak points of the case:

Alameda provided personal loans of $1 billion to Bankman-Fried, $543 million to FTX engineering director Nishad Singh, and $55 million to FTX co-CEO Ryan Salame.

FTX, a company valued at $32 billion before its collapse, didn’t bother to hold board meetings, nor did most of its subsidiaries. “Many companies in the FTX Group, especially those organized in Antigua and the Bahamas, lacked proper corporate governance,” Ray wrote. “I understand that many entities, for example, have never had board meetings.”

FTX had no cash management system in place. “FTX Group has not maintained centralized control over its cash. Procedural failings in cash management included the lack of an accurate list of bank accounts and account signatories, as well as insufficient attention to the creditworthiness of banking partners.

The company’s management of its personnel was equally chaotic. “FTX Group’s approach to human resources combined employees from various entities and external contractors, with unclear records and lines of responsibility,” Ray wrote. A week after the implosion of FTX, FTX.US and Alameda Research, new management was “unable to prepare a complete list of individuals who worked for the FTX Group as of the date of the petition, or the terms of their employment” .

Company funds were used to purchase millions of dollars of personal real estate for executives and other employees. “In the Bahamas, I understand FDX Group corporate funds have been used to purchase homes and other personal items for employees and advisors,” Ray wrote. “I understand that there does not appear to be documentation for some of these transactions as loans, and that some real estate has been recorded in the personal names of these employees and advisors in their Bahamian records.”

Clients’ crypto deposits weren’t recorded on the balance sheet, so Ray can’t even begin to account for them. “Balances of deposited client crypto assets have not been recorded as assets on the balance sheet and are not presented.”

Ray noted that one of the “most common failures” he faces with the FTX.com business is the lack of any permanent record of decision-making. “Mr. Bankman-Fried often communicated using apps set to automatically delete themselves after a short period of time, and encouraged employees to do the same.

The dossier concludes with uncompromising remarks about the status of the company’s former CEO that were clearly written after the publication of yesterday’s Vox interview. “Lastly, and most importantly, the Debtors have made it clear to employees and the public that Mr. Bankman-Fried is not employed by the Debtors and does not speak for them,” Ray wrote.

“Mr. Bankman-Fried, whose connections and financial holdings in the Bahamas are still unclear to me, recently told a reporter on Twitter, ‘F*** regulators, they’re making everything worse’ and suggested the next step for him was to “win a jurisdictional battle” against Delaware.”

The latter refers to Bankman-Fried’s statements in the interview that he wanted to wrench the company out of bankruptcy protection and somehow raise billions in new funding to make it solvent again. .

Ray said they have only located and secured $740 million in crypto to date, which is “only a fraction” of FTX’s assets. The filing also highlights $372 million in unauthorized transfers made on November 11, the day FTX filed for bankruptcy, as well as the $300 million minting of FTT, FTX’s own token, after the company has already declared bankruptcy.

Going forward, Ray lists five fundamental goals that his new leadership team will pursue on behalf of the business and those it owes: Implementing Controls, Protecting and Recovering Assets, Transparency and Investigation, Efficiency and Coordination. , and maximizing value.

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