The job of new FTX CEO John Ray III, who was appointed in the wake of the cryptocurrency exchange’s bankruptcy filing, is ostensibly to guide FTX through a complicated restructuring and try to get the exchange’s creditors and customers their money back.
Ray isn’t new to this game, having overseen the bankruptcy of another complex firm synonymous with financial scandal: Enron. So, it should carry some weight that Ray, in a new court filing (pdf), wrote that “[n]ever 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.”
He continued: “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.”
FTX’s mismanagement, in other words, was the natural result of letting a bunch of kids, comparatively speaking, run a massive financial institution from a mansion in the Bahamas.
Before FTX’s collapse, co-founder Sam Bankman-Fried was estimated to be the world’s richest person under 30, with a supposed net worth of $16 billion. But now, Ray’s court filing implies, the grownups are moving in and taking charge.
FTX’s new directors have lengthy resumes with major restructuring experience
Ray’s court filing emphasized the experience of the company’s newly appointed independent directors, including Joseph Farnan, the former chief judge of the US district court in Delaware, and Matthew Doheny, who has worked on restructurings at companies including GMAC Rescap and Eastman Kodak.
Under Bankman-Fried, FTX operated without financial audits, liquidity forecasts, or appropriate cash management, Ray wrote. The five appointed directors, he pledged, will provide FTX with “appropriate corporate governance for the first time.”
Ray took issue with FTX employees’ spending. He said corporate funds were used to purchase homes and other personal items’ for employees, often without documentation.
Missing audits, emoji expense approvals
There might be delays in finding all of the relevant financial information necessary for the bankruptcy proceeding, Ray warned, because FTX “do[es] not have an accounting department.” And, he noted, many of the company’s major business lines did not appear to have their financial results audited.
Ray also pointed out the informality of FTX’s reimbursement system. Employees “submitted payment requests through an on-line ‘chat’ platform where a disparate group of supervisors approved disbursements by responding with personalized emojis.”
But perhaps one of “the most pervasive failures” at FTX, Ray suggested, “is the absence of lasting records of decision-making. 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.”
The debtors, Ray added, “are writing things down.”