The crypto exchange’s internal controls were extremely lax up until it imploded spectacularly last week, according to the FTX chapter 11 bankruptcy filing, which is throwing new light on the situation.
The fact that FTX International only had $659,000 worth of “less liquid” crypto tokens as of the end of September, despite assertions from its creator Sam Bankman-Fried that the company held $5.5 billion worth of such tokens, is a startling admission.
John Ray III, the new CEO of FTX who is in charge of the company’s liquidation, said, “Never in my experience have I seen such a complete collapse of corporate controls and such a complete absence of trustworthy financial information as occurred here.
Given that he managed Enron’s liquidation after the company filed for bankruptcy in 2001 and lost more than $60 billion, Ray’s assertion is impressive.
Sam Bankman-Fried, the founder of FTX, caveated numerous tweet storms regarding the company’s finances as “approximate,” “to the best of my knowledge,” and “consider all of these data as rough,” which gave rise to suspicions that the internal numbers would be terrible.
The bankruptcy filing lists FTX’s assets as totaling around $2.2 billion as of September 30, although it’s unknown how different those figures would be now given the recent exchange run and high-profile hacking that happened last week.
The fact that Bankman-Fried received a $1 billion loan from the crypto hedge fund Alameda Research just before it filed for bankruptcy is another illustration of how unusual the case is. Alameda Research used customer deposits from FTX to plug its money-losing hole.
This situation, according to Ray, “is unparalleled, from compromised system integrity and subpar regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, naive, and potentially corrupted persons.”
