FTX executives joked about losing track of millions of dollars

Managers of the FTX cryptocurrency exchange mixed and diverted company and client funds and joked internally about their tendency to lose track of millions of dollars in assets, according to the first report published by debtors in their role as receivers of the bankrupt firm.

"Although the fall of the FTX group is novel for the unprecedented magnitude of the damage it has caused in a fledgling sector, many of its root causes are familiar: arrogance, incompetence and greed," said the report, published this Sunday night.

The interim report, 45 pages including covers and index, is signed by John Ray III, the firm's liquidator.

It is the first in a series in which the debtors who have taken over the administration of the firm will give an account of their findings and the efforts to recover funds to cover as much as possible the multimillion-dollar hole left by the company founded and controlled by Sam Bankman. -Fried.

John Ray III has already made it clear that his first impression of the company could not be worse.

“Never in my career have I seen such a complete breakdown of corporate controls and such a complete absence of reliable financial information as here,” he told the court, despite his long record liquidating bankrupt companies like Enron and Northel, among others.

After several months trying to discover what happened, to bring order to what remains and to recover the assets owned by the company, his impression has not improved: "Despite the public image that it tried to create as a responsible company, the group FTX was tightly controlled by a small group of individuals who showed little interest in instituting an adequate supervision or control framework”, describes the report made public this Sunday.

“These individuals quashed dissent, mixed and embezzled corporate and client funds, lied to third parties about their business, joked internally about their tendency to lose track of millions of dollars in assets, and thereby caused FTX to collapse so quickly as it had grown”, he adds.

According to John Ray III, FTX's deep control failures put its crypto assets and funds at risk from the start.

They have also complicated his asset recovery efforts as the company's new debtor-appointed CEO, though he has made "some substantial progress."

So far, debtors have recovered and secured more than $1.4 billion in digital assets and have identified another $1.7 billion, also in digital assets, which they are in the process of recovering.

They have had to turn to experts in computer engineering, cryptography, blockchain technology, cybersecurity, computer architecture and cloud computing, according to the report, which alleges that a malicious actor tried to seize $432 million and that some of the former Executives, including Bankman Fried, used passwords from some digital wallets to transfer funds to Bahamian wallets.

The FTX group's control failures created an environment in which a handful of employees had virtually unlimited power to direct transfers of fiat and crypto assets and to hire and fire employees, with no effective oversight or controls over how they exercised those powers, recounts the report, which says that it has not been possible to find a complete organization chart of the group entities and that at the time of the bankruptcy declaration, FTX "did not even have up-to-date and complete lists of who their employees were."

The lack of control reached dizzying proportions.

At its peak, FTX operated in 250 jurisdictions, controlled tens of billions of dollars in assets across its various businesses, carried out up to 26 million transactions a day, and had millions of users.

Despite these asset levels and transaction volumes, the group lacked financial and accounting controls.

The auditors are now trying to rebuild the balance sheets.

Bankman-Fried was arrested in the Bahamas, extradited to the United States and is under house arrest.

He will stand trial from October after pleading not guilty to charges of fraud and illegal campaign financing and more recently to new charges of bribing Chinese officials.

Carolyn Ellison, who ran Alameda Research, a fund that ran parallel to FTX, and Gary Wang, FTX's co-founder, have already pleaded guilty to various charges, as has Nishad Singh, FTX's former director of engineering.

All three are cooperating with the prosecution.

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