January 31, 2023

“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. Inexperienced, unsophisticated and potentially compromised by compromised system integrity and faulty regulatory oversight overseas For the concentration of control in the hands of a very small group of individuals, this situation is unprecedented.

That’s the unsolicited take from FTX’s new chief executive officer, John Ray, in a filing in the US Bankruptcy Court for the District of Delaware.

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It should be emphasized that Ray has more than 40 years of legal and restructuring experience, including chairing the collapsed energy company Enron in 2001.

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The filing outlines the haphazard management of former CEO Sam Bankman-Fried. According to Ray, there was no accurate list of bank accounts and account signatories, much less attention was paid to the creditworthiness of banking partners. Current estimates are that FTX has $564 million in cash.

“Bankman-Fried frequently communicated using applications that were set to auto-delete after a short period of time, and encouraged employees to do the same,” Ray said.

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Ray said the software was used to conceal misappropriation of client funds, and that Alameda, a secretive hedge-fund arm, was exempt from its auto-liquidation protocol.

Corporate funds were used to purchase homes and other personal items at the FTX headquarters in the Bahamas. Ray said some real estate was recorded in the records there in the individual names of employees and consultants.

Ray dryly notes that the auditor of FTX.com, the non-US exchange arm, was Prager Metis, “a firm I’m not familiar with and whose website indicates they are the first to officially open their Metaverse headquarters.” CPA firms. Metaverse Platform in Decentraland.’” He said he has “substantial concerns” over that audit.

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Alameda, the hedge-fund arm, does not have any audited financial statements. Nor does FTX’s venture capital investments have that insight.

Ray further said that there were not enough human-resources records to establish who worked there.

The filing also states that Bankman-Fried is in the Bahamas. In several media interviews as well as social-media posts, the former executive declined to identify where he was located. Ray said Bankman-Fried’s comments were both “irregular and misleading”.