In a stinging court filing posted on Thursday John Ray III, the new boss of the bankrupt crypto exchange FTX, said the company had suffered an “unprecedented” and “complete failure of corporate controls”.
Ray has overseen some of the biggest bankruptcies ever, including the collapse of the energy giant Enron, and has 40 years of experience in restructuring companies. He said he had never seen anything as bad as FTX.
“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. 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 a filing with the Delaware bankruptcy court.
The company’s collapse has shaken the cryptocurrency market to its core and already sparked international regulatory inquiries and a lawsuit against the company and the celebrities who promoted it including Larry David, Naomi Osaka, Gisele Bündchen and Shaquille O’Neal.
Ray said a “substantial portion” of assets held by FTX may be “missing or stolen”.
Ray was appointed just before FTX plunged into bankruptcy and founder Sam Bankman-Fried resigned as CEO. Bankman-Fried is currently in the Bahamas where FTX was headquartered and has claimed the company is still solvent.
He has also been giving interviews in which he has said he regrets filing for bankruptcy and attacked regulators. US authorities are reportedly considering extraditing him to the US.
The latest court filing paints a troubling picture of FTX’s operations. Ray said he had “substantial concerns” about the company’s financial statements. “I do not have confidence in it and the information,” he wrote. He said company payments were authorized “through an on-line ‘chat’ platform where a disparate group of supervisors approved disbursements by responding with personalized emojis”.
“In the Bahamas, I understand that corporate funds of the FTX Group were used to purchase homes and other personal items for employees and advisors. I understand that there does not appear to be documentation for certain of these transactions as loans, and that certain real estate was recorded in the personal name of these employees and advisors on the records of the Bahamas,” Ray wrote.
Documents obtained by the Financial Times suggest FTX had $1bn of liquid – easily sellable – assets and $9bn of liabilities the day before it collapsed. According to the filing, Ray’s team has located about $740m in cryptocurrencies held by FTX and other related companies. He said the amount was “a fraction of the digital assets of the FTX Group that they hope to recover”.
Ray also criticized Bankman-Fried’s behavior since the bankruptcy announcement.
“Finally, and critically, the Debtors have made clear to employees and the public that Mr Bankman-Fried is not employed by the Debtors and does not speak for them. Mr Bankman-Fried, currently in the Bahamas, continues to make erratic and misleading public statements. Mr Bankman-Fried, whose connections and financial holdings in the Bahamas remain unclear to me, recently stated to a reporter on Twitter: ‘F*** regulators they make everything worse’ and suggested the next step for him was to ‘win a jurisdictional battle v Delaware’,” he wrote.