Illustration of the FTX logo, representations of cryptocurrencies and a decreasing stock graph
Veteran insolvency professional John Ray said FTX was the worst case of corporate failure he had seen in his more than 40-year career © Dado Ruvic/Reuters

The new chief executive of FTX, an insolvency professional who oversaw the liquidation of Enron, has said that the bankruptcy of the crypto group is the worst case of corporate failure he has seen in more than 40 years.

John Ray III, who was appointed to run the FTX bankruptcy, said in a US court filing that he had never seen “such a complete failure of corporate controls and such a complete absence of trustworthy financial information”.

The statement underlined the chaos and mismanagement at the heart of Sam Bankman-Fried’s collapsed $32bn crypto exchange, which has plunged digital asset markets into crisis. Bankman-Fried did not immediately respond to a request for comment on the new filing.

Ray said he had found at FTX international, FTX US and Bankman-Fried’s Alameda Research trading company “compromised systems integrity”, “faulty regulatory oversight abroad” and a “concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals”.

The scathing filing in the federal bankruptcy court in Delaware painted a picture of severe mismanagement by Bankman-Fried at FTX, which raised billions of dollars from top-tier venture capital investors such as Sequoia, SoftBank and Temasek.

FTX failed to keep proper books, records or security controls for the digital assets it held for customers, used software to “conceal the misuse of customer funds” and gave special treatment to Alameda, said Ray. He added that FTX did not have an accounting department and instead outsourced “this function”.

The company did not have “an accurate list” of its own bank accounts, or even a complete record of the people who worked for it. FTX used “an unsecured group email account” to manage the security keys for its digital assets, he added.

The group’s funds had been used “to purchase homes and other personal items” for staff and advisers, and payments were approved through the use of “personalised emojis” in an online chat, according to Ray.

Ray said that “one of the most pervasive failures” at FTX’s main international exchange was the lack of records about decision-making. He said that Bankman-Fried often used messaging platforms with an auto-delete function “and encouraged employees to do the same”.

Among the assets listed in the document was $4.1bn of loans from Alameda, $3.3bn of which was to Bankman-Fried both personally and to an entity he controlled.

Bankman-Fried previously told the Financial Times that FTX had “accidentally” given $8bn of FTX customer funds to Alameda.

Ray said that among the core objectives of the bankruptcy proceedings was a “comprehensive, transparent and deliberate investigation into [potential legal] claims against” Bankman-Fried.

Several academic and industry experts have told the FT that creditors may seek to have a “trustee” appointed to take over the management of FTX, given the scale of alleged misconduct leading up to the bankruptcy.

Ray added that the fair value of the crypto assets held by the FTX international exchange was a mere $659,000 as of September 30. The filing does not include an estimate of crypto assets owed to customers but says that they are expected to be “significant”.

Ray said FTX had been able to move $740mn of cryptocurrency to offline “cold” wallets where it could be secured. The company had also suffered a near $400mn hack of crypto just after it filed for bankruptcy.

The bankruptcy process has been hampered by a lack of reliable information kept by the company, according to Ray, who cautioned that even the balance sheet figures provided in the filing might be unreliable because they were prepared when Bankman-Fried ran FTX.

In the initial bankruptcy filing on Friday last week, the combined assets and liabilities of FTX international, FTX US and Alameda were estimated at between $10bn and $50bn.

Amid Ray’s first statements on the collapse of FTX, a jurisdictional fight over the company’s legal proceedings has emerged. Earlier in the week, officials in the Bahamas filed a Chapter 15 bankruptcy in a New York federal court asking a judge there to respect a liquidation effort that had commenced in the island nation.

At issue is an FTX subsidiary known as FTX Digital not involved in the US Chapter 11 case in which the Bahamas says significant customer assets reside. Ray on Thursday wrote in a court filing that the Chapter 15 case should be consolidated in the Delaware bankruptcy court.

Late Thursday the Securities Commission of the Bahamas said it directed the transfer of all digital assets of FTX’s local subsidiary to a “digital wallet controlled by the commission, for safekeeping”. The Bahamian watchdog added that “urgent interim regulatory action” was needed to protect FTX Digital Markets clients and creditors.

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