New FTX boss condemns Bankman-Fried for ‘complete failure of corporate controls’

The new CEO of collapsed crypto exchange FTX issued a scathing rebuke of his predecessor, Sam Bankman-Fried, on Thursday, accusing the former boss of allowing “a complete failure of corporate controls.”

John Ray III was named chief executive of FTX last week shortly before the company filed for Chapter 11 bankruptcy and Bankman-Fried resigned. The lawyer – who previously oversaw the $23 billion bankruptcy of energy company Enron – is now tasked with investigating FTX’s rapid and stunning fall.

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of reliable financial information as has occurred here,” Ray said in a U.S. bankruptcy court filing. of the district of Delaware. “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. “

INSIDE THE CRYPTO EXCHANGE FTX COLLAPSE: EVERYTHING YOU NEED TO KNOW

Sam Bankman-Fried, Founder and CEO of FTX Cryptocurrency Derivatives Exchange, speaks at the Institute of International Finance’s Annual Members Meeting in Washington, DC on October 29. 13, 2022. (Ting Shen/Bloomberg via Getty Images/Getty Images)

In the filing, Ray said he “did not have confidence” in the accuracy of the balance sheets of FTX and its affiliate trading company, Alamedia Research. Companies, he wrote, were “not audited and produced while debtors [FTX] were controlled by mr. Bankman-Fried.”

A “substantial portion” of the assets held by FTX may be “missing or stolen,” Ray said in the filing.

The newly appointed director also noted that many FTX Group companies do not have proper corporate governance, nor do they hold board meetings. On top of that, he suggested employees use company funds to pay for houses and other items.

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“In the Bahamas, I understand that FTX Group Company funds have been used to purchase homes and other personal items for employees and advisors. I understand that there does not appear to be documentation for some of these transactions as loans, and that certain real property the estate has been registered in the personal names of these employees and advisers in the records of the Bahamas,” he said.

FTX, once the world’s third-largest exchange with a valuation of nearly $32 billion, sent shockwaves through the crypto world on Friday when it announced it was filing for bankruptcy, along with Alameda Research and other affiliated companies. Days earlier, industry rival Binance backed out of a deal to buy its struggling competitor after glancing at the books and learning that FTX had “mismanaged client funds.”

Bankman-Fried, the company’s founder and CEO, announced his resignation when bankruptcy papers were filed Friday in Delaware.

FTX

FTX was once the third largest exchange in the world with a valuation of nearly $32 billion. (OLIVIER DOULIERY/AFP via Getty Images/Getty Images)

The company and Bankman-Fried are under investigation in the United States and other countries for possible securities violations amid allegations that FTX used $10 billion in client funds to support Alameda Research, its commercial affiliate.

The sudden collapse, which threatened to upend futures markets, has been compared to the crypto industry’s “Lehman Brothers” moment – a reference to the 2008 collapse of the global financial services firm that helped trigger the global financial collapse.

This has raised major concerns about an industry that has remained largely unregulated.

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Panels in both Senate and House plan to hold hearings into the FTX collapse next month. The House Financial Services and Senate Banking Committees are planning December hearings that will examine the sudden demise of FTX under the leadership of Bankman-Fried, a Democratic mega-donor.

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