Just when you thought it can’t get any more surreal — past the big-brother twists where the company was allegedly ran by 10 people in the Bahamas who lived in the same house and were intimate with each other, the recent hack and missing billions, the FTX story continues to deliver more surprises than a Kinder Egg factory.
After SBF has proven to likely be, what many people currently consider the most incapable frontman in Crypto, a new CEO swoops in to effectively pick up the pieces and figure out a way to end this mess with minimum damage. The first order of business for new CEO John Ray, who also managed the liquidation of energy company Enron was to file for bankruptcy. Naturally, this mean digging into the company financials.
To understand just how broken FTX had been internally, we’ll go over the Bankruptcy Filing document and highlight the most crucial aspects that came to light as a result. All quotes in this article are from the official Bankruptcy filling, which I will link down below for anyone wishing to go through it in their own time.
“Never in my career have I seen such a complete failure of corporate controls”
Was Jon Ray’s opening statement regarding the financial and administrative situation over at the collapsed s̶e̶x̶ crypto exchange FTX.
1. Compromised systems, people, and lack of experience
“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.”
This is just the 5th paragraph of the Bankruptcy filing, and it offers a great birds-eye view over just how royally f***ed the situation is.
2. FTX had no cash management system
“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.”
Employees of the world’s second biggest Cryptocurrency exchange have been approving internal payments by reacting to messages or replying with personalised emojis. An exchange operating with this level of sloppiness is almost too good a writing to think it’s actually real. Oh but it is.
Imagine the following exchange:
Some Employee: Hey, company X is asking for a $17,000,000 loan.
Some Supervisor: 🤙
No logging, no tracking, and no confirmation, just a dumb hand emoji sent through a chat platform (doesn’t specify which).
3. FTX Used company funds to pay for homes in the Bahamas
“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.”
If you thought not logging loans and other spends onto a system was the bottom of the barrel, FTX manages to somehow, once again, out-dumb itself.
4. SBF received a $1 billion U.S. dollar loan from Alameda Research
“Related Party Loans Receivable of $4.1 billion at Alameda Research (consolidated) consisted primarily of a loan by Euclid Way Ltd. to Paper Bird Inc. (a Debtor) of $2.3 billion and three loans by Alameda Research Ltd.: one to Mr. Bankman-Fried, of $1 billion; one to Mr. Singh, of $543 million; and one to Ryan Salame, of $55 million.”
There is so much going on this bankruptcy report that this $4.1 billion loan to several employees including a $1 billion loan to former FTX CEO SBF is just one item in a report filled with equally or even more ridiculous facts about the absolute dumpster fire that was FTXs internal organsiation.
5. Written evidence of decision making was purposefully avoided
“One of the most pervasive failures of the FTX.com business in particular 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.”
For whatever reason that is definitely beyond my human understanding, FTX internal commas and decision making was run on applications such as Snap chat to conceal or rather not track who, how and when business decisions were being made.
6. Complete lack of board meetings for many entities under FTX Group
“Many of the companies in the FTX Group, especially those organized in Antigua and the Bahamas, did not have appropriate corporate governance. I understand that many entities, for example, never had board meetings.”
7. FTX didn’t even have proper employee records
“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.”
Imagine not being able to know who works for you, what their salary is, or any basic, crucial information that even your local street food vendor has.
All of this was officially stated by the new FTX CEO — John Ray under the penalty of Perjury. There is a lot more stuff in the bankruptcy report that is absolutely wild, so if you want to dig through the file yourself, you can do so here.
I will continue to monitor the situation and provide more updates as they become available.