The 10 most damning revelations about FTX in its bankruptcy report

The 10 most damning revelations about FTX in its bankruptcy report – from $1B personal loan to Sam Bankman-Fried and payments signed off with EMOJIS to investor funds being used to buy homes for workers in the Bahamas

  • Bankruptcy filing includes a list of failures that are so damning it’s remarkable FTX did not implode sooner
  • Litany of faults include using software to conceal misuse of client funds, ‘inexperienced… unsophisticated leadership’ and HR so bad that it’s not clear who even worked for FTX
  • Filing also shows Bankman-Fried was loaned $1 billion by Alameda Research, the company he set up and owned which is accused of gambling FTX client funds worth billions of dollars
  • Company money was used to buy property in the Bahamas, the tax haven where FTX was based, and purchase ‘personal items’ for staff and advisors
  • The veteran businessman appointed to oversee the bankruptcy said he’s never seen ‘such a complete failure of corporate controls and such a complete absence of trustworthy financial information’ in his 40-year career

‘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,’ writes John J. Ray III, the man appointed as CEO of cryptocurrency exchange platform FTX to guide it through its collapse.

And that’s coming from a man who helped deal with the fallout from the Enron scandal, once the largest corporate bankruptcy in US history. 

The observations he makes in bankruptcy filings for FTX are so damning that it’s remarkable the company did not implode sooner.

Ray, who has 40 years of legal and restructuring experience, lists a litany of failures from ‘inexperienced… potentially compromised’ leadership to hiding misuse of customer funds and splurging company cash on houses in the Bahamas.

These are 10 of the most damning revelations included in the FTX bankruptcy filing: 

Bankman-Fried loaned $1bn… by his own company

At the height of his success, Bankman-Fried was worth an estimated $26 billion. His reputation helped him secure the backing of celebrities like supermodel Gisele Bundchen. The filings show he was loaned a massive $1 billion by Alameda Research, the company he founded which was handed billions of dollars in FTX clients’ money 

FTX founder Sam Bankman-Fried meets Katy Perry, Bill Clinton, Tony Blair and the Prime Minister of the Bahamas, Philip Davis, at the Crypto Bahamas event organized by FTX

The filings reveal Sam Bankman-Fried was loaned $1 billion by Alameda Research. FTX co-founder Nishad Singh was loaned $543 million by Alameda.

That’s suspicious because Alameda Research, a trading firm, was founded and owned by Bankman-Fried. Alameda is accused of secretly using billions of dollars of FTX client funds for risky investments which failed.

FTX is believed to have lent around $10 billion dollars worth of customer funds to Alameda. FTX collapsed when spooked clients rushed to withdraw their money and the firm couldn’t pay out.

Empire run by inexperienced, unsophisticated, potentially compromised individuals

Bankman-Fried’s on-off lover, Caroline Ellison, 28, was CEO of Alameda Research, which was loaned billions of dollars of FTX clients’ cash to make risky investments . She had only 18 months of professional experience when she joined Alameda.

Nishad Singh co-founded FTX with Bankman-Fried. The bankruptcy filings say he was loaned $543 million by Alameda Research, the company founded and owned by Bankman-Fried. Alameda was loaned billions of dollars worth of client money by FTX.

FTX co-founder Gary Wang was one of Bankman-Fried’s inner circle. The bankruptcy filing says the FTX group’s leadership was ‘inexperienced, unsophisticated and potentially compromised’

At its peak, FTX was worth $32 billion. The trading platform had around one million customers and processed trades worth nearly a billion dollars per day.

But this behemoth of the crypto sphere was controlled by ‘a very small group of inexperienced, unsophisticated and potentially compromised individuals’, Ray states in the bankruptcy filing.

Later in the document, he notes that Bankman-Fried and FTX co-founder Gary Wang ‘controlled access to digital assets of the main businesses in the FTX Group’.

The integrity of its systems was compromised and there was ‘faulty regulatory oversight abroad’.

FTX staff lavished with homes and luxuries – using company funds

Bankman-Fried and nine members of his inner circle, including his on-off lover Caroline Ellison, lived in a $40 million penthouse in the Bahamas. The filings detail how FTX’s money was used to purchase homes in the Bahamas and other ‘personal items’ for employees

The swimming pool at Bankman-Fried’s luxury penthouse. The penthouse is on a Bahamas resort part-owned by Tiger Woods and Justin Timberlake.

It’s known Sam Bankman-Fried and his inner circle lived in a $40 million penthouse in the Bahamas, the Caribbean tax haven where FTX was headquartered.

And the bankruptcy filing raises questions about how the luxurious home – at a resort owned by individuals including Tiger Woods and Justin Timberlake – was paid for.

The bankruptcy filing explains that the company’s corporate funds were used to buy several homes in the Bahamas. Money was also splurged on ‘personal items’ for staff and advisors.

Ray writes: ‘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.’

FTX supervisors signed off payments with ‘personalized emojis’ in online chat platforms

Payments signed off with emojis in online chatrooms

International companies which handle transactions worth billions of dollars use strict protocols and procedures to keep everything above board.

Not FTX.

Payments were signed by supervisors using ‘personalized emojis’ in an ‘online “chat” platform’, the filing states.

Explaining the process in formal terms, Ray writes: ‘The Debtors did not have the type of disbursement controls that I believe are appropriate for a business enterprise.

‘For example, employees of the FTX Group submitted payment requests through an on-line ‘chat’ platform where a disparate group of supervisors approved disbursements by responding with personalized emojis.’

He says the new leadership is now implementing proper payment approval processes.

Software used to conceal misuse of customer funds

At the heart of FTX’s collapse is the clandestine use of clients’ money to provide Alameda Research with loans worth billions of dollars.

The bankruptcy filing reveals ‘the use of software to conceal the misuse of customer funds’.

The finding means staff within FTX intentionally misused client money then tried to cover their tracks.

The new leadership also found ‘‘the secret exemption of Alameda from certain aspects of FTX.com’s auto-liquidation protocol, and ‘the absence of independent governance’ between Alameda and other parts of the FTX group.

Alameda was owned 90% by Mr Bankman-Fried and 10% by Mr Wang, the document states.

Bankman-Fried urged staff to use ‘self-destruct’ messaging apps

Bankman-Fried was hailed as an unorthodox business genius. The teetotal vegan slept four hours a night, usually on a beanbag in his office. His reptuation has been shattered by the collapse of FTX – and the bankruptcy filing outlines the unbridled chaos within his company.

‘One of the most pervasive failures of the FTX.com business in particular is the absence of lasting records of decision-making.’

Ray’s blistering criticism of the record-keeping at FTX is damning.

He adds: ‘Mr. Bankman-Fried often communicated by using applications that were set to auto-delete after a short period of time, and encouraged employees to do the same.’

In what can be perceived as a pointed criticism of the chaotic, he adds simply: ‘The Debtors are writing things down.’

He also explains how ‘the FTX Group did not keep appropriate books and records, or security controls, with respect to its digital assets’.

Ray repeatedly says he does ‘not have confidence’ in the information and accounts provided to him.

HR so bad it’s not clear who even worked for FTX

Human resources within the FTX group of companies, including Alameda, is so chaotic that the experts brought in to manage the bankruptcy haven’t even been able to draw up a complete list of who works there.

The bankruptcy filing explains: ‘The FTX Group’s approach to human resources combined employees of various entities and outside contractors, with unclear records and lines of responsibility.

‘At this time, the Debtors have been unable to prepare a complete list of who worked for the FTX Group as of the Petition Date, or the terms of their employment.

‘Repeated attempts to locate certain presumed employees to confirm their status have been unsuccessful to date.’

The assessment is yet more evidence of the chaotic and careless approach to important internal processes.

‘Biggest failure of corporate controls I’ve ever seen’

John J. Ray III, the man appointed to guide FTX through its bankruptcy, has managed the fallout from from some of the largest corporate failures in history.

But even this veteran executive, who has over 40 years of legal and restructuring experience, has never seen ‘such a complete failure of corporate controls’.

The newly-appointed CEO of FTX opened the bankruptcy proceedings with an assessment so damning that it is hard to comprehend how FTX was able to survive for as long as it did.

Ray, who played a key role in fighting the Enron scandal, said in the filing: ‘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.’

Billions of dollars in crypto missing

Bankman-Fried recently claimed FTX.com held crypto tokens worth $5.5 billion.

The bankruptcy filing states the company’s crypto assets are worth just $659,000.

In total, the team behind the bankruptcy process has unearthed only $740 million of cryptocurrency – ‘only a fraction of the digital assets’ they hoped to recover.

That crypto has been moved into ‘cold wallets’ that are more secure because they held on platforms not connected to the interest.

The sum falls disastrously short of what was expected – and what is owed to investors.

Ray also notes that on the day bankruptcy was filed, at least $372 million of unauthorized crypto transfers were made out of the firm’s accounts.

On the same day, an ‘unauthorized source’ also minted $300 million of FTT tokens, the digital token issued by FTX, similar to cryptocurrencies like bitcoin.

It raises the obvious question: Where on earth are the missing billions?

Unsecured email accounts to handle ‘critically sensitive data’

The lax approach to security processes is highlighted by FTX’s use of an unsecured group email account to ‘access confidential private keys and critically sensitive data for the FTX Group companies around the world’.

Ray explains: ‘The FTX Group did not keep appropriate books and records, or security controls, with respect to its digital assets.’

He describes the use of unsecured emails as one of a series of ‘unacceptable management practices’.

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