FTX, a collapsing cryptocurrency exchange, had financial records worse than Enron. This was claimed by its administrator.
John Ray was appointed as FTX’s liquidator last Wednesday. He stated in bankruptcy filings that he had never seen such a complete failure in corporate controls or such a complete lack of reliable financial information as what happened here.
After Enron’s 2001 collapse, Mr Ray was responsible for overseeing the winding down of the US energy company Enron. Enron’s bankruptcy reduced the company’s $60bn valuation (£51bn), to zero, and led to the collapse of Arthur Andersen, a global audit firm. Jeffrey Skilling, Enron’s chief executive, was sentenced to 24-year imprisonment after being convicted on charges of conspiracy, insider trading and making false statements about auditors.
In the FTX filing, Mr Ray stated that the company was managed by “a very small number of inexperienced and unsophisticated individuals”, calling it “unprecedented”.
According to the filing, executives would approve payment requests by responding with “personalised emojis” (messages on company chat platforms) to them.
According to other filings, FTX has only $740m worth of digital tokens at the moment, despite owing $9bn when it filed for bankruptcy protection. In a funding round, it was valued at $32bn earlier this year.
Mr Ray urged the court not to rely upon balance sheets prepared by former chief executive Sam Bankman Fischer. He highlighted the absence of internal controls and difficulties in establishing what assets FTX controlled and owned. According to Mr Ray, the company appeared to have paid for property located in the Bahamas which was registered to individuals and not to the company.
An ex-Enron administrator also questioned the credentials of the audit firm that approved FTX’s financials. He pointed out that the company boasted recently of opening an office within Facebook’s metaverse virtual universe.
This shocking verdict is coming as regulators from around the globe, including the US Department of Justice investigate the collapse of FTX , which has left more than one million creditors without a source of income.
The company was sued by Mr Bankman-Fried, celebrities who supported it, and NFL quarterback Tom Brady. Larry David, the Seinfeld creator, also filed a lawsuit against the company.
After leaving the company, Mr Bankman Fried took to Twitter to discuss his decision-making process. These public statements by Ray were disruptive. FTX’s official account on Twitter stated that Mr Bankman-Fried had no role at FTX, FTX US or Alameda Research Ltd. He does not speak for them.
Separately, Mr Bankman Fried claimed that he had embellished his ethical credentials in a “dumb game we woke Westerners play” interview with Vox.
The 30-year-old stated that his public stance on ethics was partly a “front” to make his reputation more “so everyone likes me”.
Mr Bankman-Fried, who was once worth approximately $16bn at one time, was self-described “effective altruist”, meaning that he wanted to make as much money as possible to give to charities.
He was featured in several videos sharing his views on world poverty and climate change. He also posted his thoughts on Twitter about how to maximize his positive influence on the world.
Vox was not convinced.
He tweeted on Thursday morning: “Something I said was thoughtless, or too strong.” It was a venting thing that I did not intend to make public.
He said, “What matters is what you do. It is not about ESG language or doing good.
Twitter users have compared the collapse of FTX to Bernie Madoff (an American financier who ran the largest Ponzi scheme fraud in history, worth more than $60 billion), according to crypto investors.
It has been accused that the company misappropriated billions of pounds of customer deposits to FTX, and secretly transferred them to Alameda Research to make high-risk investments.
Vox interviewed Mr Bankman-Fried and he seemed to agree that he used customer money to make questionable trades.
He said that it was not his intention, but sometimes life gets in the way.
He stated that each step was rational and reasonable in isolation, but when I added them all up last week, it wasn’t.”
FTX, which was based in a luxurious Bahamas penthouse, filed last week for bankruptcy protection in the US.
