The man who had to clean up the mess at Enron says the situation at FTX is even worse, describing what he calls a “complete failure” of corporate control.
The filing by John Ray III, the new CEO of the bankrupt cryptocurrency firm, lays out a damning description of FTX’s operations under its founder Sam Bankman-Fried, from a lack of security controls to business funds being used to buy employees homes and luxuries.
“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,” Ray said. “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.”
Ray was appointed CEO on November 11, after the company was near collapse and its previous management sought legal counsel on what to do next. Bankman-Fried was persuaded to give up control of the company by his lawyers as well as his father, Joseph Bankman, a professor at Stanford Law School, according to Thursday’s filing.
Since his resignation, Bankman-Fried has sought out news outlets for interviews and has been active on Twitter trying to explain himself and the firm’s failure.
In an interview with the online news outlet Vox, Bankman-Fried admitted that his previous calls for regulation of cryptocurrencies were mostly for public relations.
“Regulators, they make everything worse,” Bankman-Fried said, using an expletive for emphasis.
In a terse statement, Ray said that Bankman-Fried’s statements have been “erratic and misleading” and “Bankman-Fried is not employed by the Debtors and does not speak for them.”
Ray noted that many of the companies in the FTX Group, particularly those in Antigua and the Bahamas, didn’t have appropriate corporate governance and many had never held a board meeting. Ray also addressed the use of corporate funds to pay for homes and other items for employees.
“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,” he said.
So far, debtors have found and secured “only a fraction” of the group’s digital assets that they hope to recover, with about $740 million of cryptocurrency secured in new cold wallets, which is a way of holding cryptocurrency tokens offline, said Ray.
Ray was named CEO of FTX less than a week ago when the company filed for bankruptcy protection and its CEO and founder Bankman-Fried resigned. The embattled cryptocurrency exchange, short billions of dollars, sought bankruptcy protection after the exchange experienced the crypto equivalent of a bank run.
In its bankruptcy filing, FTX listed more than 130 affiliated companies around the globe. The company valued its assets between $10 billion to $50 billion, with a similar estimate for its liabilities.
Bankman-Fried was recently estimated to be worth $23 billion. His net worth has all but evaporated, according to Forbes and Bloomberg, which closely track the net worth of the world’s richest people.
FTX’s failure goes beyond finance. The company had major sports sponsorships as well, including Formula One racing and a sponsorship deal with Major League Baseball. Miami-Dade County decided Friday to terminate its relationship with FTX, meaning the venue where the Miami Heat play will no longer be known as FTX Arena. Mercedes was planning to remove FTX from its race cars starting last weekend.