On Thursday, John Ray, III, the new CEO of FTX, filed a long-awaited statement in US bankruptcy court, giving a sober assessment of the collapse of Sam Bankman-Fried’s crypto empire. The bankruptcy court filing followed a whirlwind of events, including the publication of explosive texts that Bankman-Fried sent to a Vox reporter earlier this week.
Ray set the tone for what he’s found since FTX filed for bankruptcy protection last week, citing his 40 years of legal and restructuring experience, including a role as director of the restructuring and CEO of Enron, one of the biggest corporate meltdowns of all time. .
“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 wrote. “This situation is unprecedented.”
Here are 10 revelations Ray made Thursday in federal bankruptcy court about Bankman-Fried and the FTX debacle he created.
1. Most of FTX’s digital assets have not been secured
On Thursday, Ray made it clear that while he now controls the various FTX trading and exchange platforms and Bankman-Fried’s Alameda Research crypto hedge fund, he has “located and secured only a fraction of the assets digital” that he hoped to recover. In fact, Ray said only $740 million worth of cryptocurrency has been secured in new cold wallets. Ray cited at least $372 million in unauthorized transfers that took place the day FTX and Alameda filed for bankruptcy last week, and the “‘dilutive minting’ of around $300 million in FTT tokens by a unauthorized source” in the days following the filing. . FTT tokens were created by FTX to facilitate trading on its exchange and were a large part of Alameda’s assets.
2. No one knows who FTX’s biggest creditor clients are.
FTX.com and FTX.US had customers around the world using its cryptocurrency exchanges and platforms. But Ray said he was unable to create a list of FTX’s top 50 creditors that included clients.
3. Alameda Research has loaned $4.1 billion to entities including Bankman-Fried and its closest partners.
It has been reported that FTX has lent billions of dollars in client funds to Bankman-Fried hedge fund Alameda Research. But on Thursday, Ray disclosed that Alameda had made $4.1 billion in loans to related parties that remained unpaid at the end of September. This included a $1 billion loan that Alameda made to Bankman-Fried itself, a $543 million loan to FTX co-founder Nishad Singh, and $55 million borrowed from the co-CEO of FTX, Ryan Salame.
4. FTX company funds were used to buy personal houses
Bankman-Fried lived in a luxury resort in the Bahamas, where FTX was also based. There, according to bankruptcy filings, funds from the FTX company “were used to purchase homes and other personal items for employees and councillors.” Ray said in his file that there was no documentation for the transactions and loans associated with these real estate purchases, which were recorded in the personal names of employees and advisors.
5. Custom emojis to approve disbursements
To demonstrate the lack of disbursement and proper business controls at FTX, Ray pointed out that FTX employees “submitted payment requests via an online ‘chat’ platform where a disparate group of supervisors approved disbursements by responding with personalized emojis”.
6. Alameda Research was one of the largest hedge funds in the world
According to the bankruptcy filing, Alameda’s balance sheet showed $13.46 billion in total assets at the end of September. This is roughly equivalent to the assets managed by famous billionaire hedge fund traders like Bill Ackman, Paul Tudor Jones and Jeffrey Talpins.
7. Metaverse Audit Notice
Bankman-Fried obtained audit opinions for the FTX international trading platform that was part of his business from Prager Metis, a company Ray had never heard of before. Ray said he went to the company’s website to find out more and discovered that Prager Metis describes itself as the “first CPA firm to officially open its Metaverse headquarters on the Decentraland metaverse platform.” .
8. Alameda had a secret exemption on FTX.com
Ray’s filing on Thursday indicated Bankman-Fried’s Alameda hedge fund may have had a trading advantage on the FTX.com trading platform. According to the filing, Alameda had a “secret exemption” from “certain aspects of FTX.com’s reverse charge protocol.”
9. Customer liabilities are not reflected in FTX’s financial statements
Ray expects the exchange and trading platform FTX.US, which served US clients, will have “significant liabilities arising from crypto assets deposited by clients through the FTX US platform.” He thinks that the FTX exchange which was used by FTX clients outside the United States could also have significant client responsibilities. But none of those liabilities are reflected in the financial statements that were prepared while Bankman-Fried ran FTX, Ray said.
10. Ray has no faith in FTX’s track record
Time and time again in the filing, Ray offers the same warning after detailing the financials related to FTX. He notes that many of FTX’s and Alameda’s balance sheets are unaudited, and that because they were produced when Bankman-Fried ran and controlled the company, “I don’t trust her.”
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