The new CEO of FTX, who also ran Enron when it went bankrupt, says he has never seen “such a complete failure” of corporate controls.
In a filing with the U.S. government, John Ray III, the new CEO of FTX, didn’t hold back. Bankruptcy Court for the District of Delaware, saying that “in his 40 years of legal and restructuring experience,” he had never seen “such a complete failure of corporate controls and such a complete lack of trustworthy financial information as happened here.”
Ray used to be the CEO of Enron before the energy giant went bankrupt. He said that he would work with the government to look into FTX founder Sam Bankman-Fried.
Ray wrote in the filing that he “did not have confidence” in the accuracy of the balance sheets for FTX and its sister company, Alameda Research, because they were “not audited” and made while Mr. Bankman-Fried was in charge of FTX.
The document is a statement from Ray in his new role as CEO of FTX and related companies. Last week, FTX and related companies filed for bankruptcy, which sent shock waves through the crypto world and scared investors.
Ray criticised Bankman-Fried and his management team for what he called lax controls on systems and compliance with regulations.
The former Enron recovery boss said, “The concentration of control in the hands of a very small group of inexperienced, unsophisticated, and possibly corrupt people was unprecedented.”
Ray said that a “substantial portion” of the assets held by FTX may be “missing or stolen.” This comes after cryptocurrencies worth hundreds of millions of dollars were reported stolen on social media.
Ray wrote that the Chapter 11 bankruptcy process would look into what Bankman-Fried did before FTX fell apart. This would be done in coordination with regulators.
Ray wrote in an alarming way that part of his job would be to set up controls and basic corporate standards like “accounting, audit, cash management, cybersecurity, human resources, risk management, data protection, and other systems that did not exist or did not exist to an appropriate degree before my appointment.”
Bankman-Fried and FTX “used an unsecured group email account as the root user to access confidential private keys and highly sensitive data for FTX Group companies all over the world.” Positions on the blockchain were not reconciled every day, and software was used to hide the misuse of customer funds.
In 2008, when Bernie Madoff’s Ponzi scheme fell apart, sophisticated software was also used to hide wrongly marked and fake customer positions.
FTX is working on making an accurate list of cash and cryptocurrency assets. Ray said that it wouldn’t be right for “stakeholders or the Court to use the audited financial statements as a reliable sign of FTX’s financial situation.”