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New FTX boss condemns Bankman-Fried for ‘complete failure of corporate controls’

New FTX boss condemns Bankman-Fried for 'complete failure of corporate controls'
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The new CEO of collapsed crypto exchange FTX delivered a scathing rebuke to his predecessor Sam Bankman-Fried on Thursday, accusing the former boss of allowing “a complete failure of corporate controls.”

John Ray III was named chief executive of FTX last week, just before the company filed for Chapter 11 bankruptcy and Bankman-Fried resigned. The attorney who previously oversaw energy company Enron’s $23 billion bankruptcy is now tasked with investigating FTX’s rapid and stunning decline.

“Never in my career have I seen such a complete failure of corporate controls and a complete lack of trustworthy financial information,” Ray said said in a file in the US Bankruptcy Court for the District of Delaware. “From the compromised system integrity and flawed regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, inexperienced and potentially vulnerable individuals, this situation is unprecedented.”

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Sam Bankman Fried

Sam Bankman-Fried, Founder and CEO of FTX Cryptocurrency Derivatives Exchange, speaks during the annual membership meeting of the Institute of International Finance in Washington, DC October 27. 13th, 2022. (Ting Shen/Bloomberg via Getty Images/Getty Images)

In the filing, Ray said he had “no confidence” in the accuracy of the financial statements of FTX and its affiliated trading firm, Alamedia Research. The companies, he wrote, were “unaudited and produced while the debtors [FTX] were by Mr. Bankmann-Fried.”

A “significant portion” of the assets held by FTX “could be missing or stolen,” Ray said in the filing.

The newly appointed executive also pointed out that many of the FTX Group companies did not have adequate corporate governance and did not hold board meetings. In addition, he suggested that employees should use company funds to pay for houses and other items.

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“I understand that in the Bahamas, FTX Group corporate funds were used to purchase homes and other personal items for employees and consultants. I understand that there appears to be no documentation for certain of these transactions as loans, and that certain real estate was entered in the Bahamas records in the personal names of these employees and consultants,” he said.

FTX, once the third largest exchange in the world with a valuation of nearly $32 billion, sent shockwaves through the crypto world on Friday when it announced it was filing for bankruptcy along with Alameda Research and other related companies. Days earlier, industry competitor Binance pulled out of a deal to buy its struggling competitor after looking through the books and learning that FTX had been “mishandling customer funds.”

Bankman-Fried, the company’s founder and CEO, announced his resignation as bankruptcy filings were filed in Delaware on Friday.

FTX

FTX was once the third largest exchange in the world with a valuation of nearly $32 billion. (OLIVIER DOULIERY/AFP via Getty Images/Getty Images)

Both the company and Bankman-Fried are under investigation in the US and elsewhere over possible securities breaches over allegations that FTX used $10 billion in customer funds to prop up its affiliated trading firm, Alameda Research.

The sudden collapse that threatened to rock futures markets has been likened to the crypto industry’s “Lehman Brothers” moment – a reference to the collapse of the global financial services company in 2008 that helped spark the global financial crisis.

It has raised major concerns about an industry that has remained largely unregulated.

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panels in the two Senate and House of Representatives plan to hold FTX collapse hearings next month. The House Financial Services Committees and Senate Banking Committees are planning hearings in December that will examine the abrupt demise of FTX led by Bankman-Fried, a Democratic mega-donor.

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