New FTX CEO John J. Ray III unleashed a scathing review of his company’s operations under founder and former CEO Sam Bankman-Fried in bankruptcy filings Thursday.
Ray, who, for the past 40 years, has acted as chief restructuring officer and CEO in “several of the largest corporate failures in history” with “nearly every situation … characterized by defects of some sort in internal controls, regulatory compliance, human resources and systems integrity,” didn’t mince words in explaining how FTX went from a multibillion-dollar enterprise to bankrupt last week.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” he wrote. “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.”
These words, it should be noted, come from a man who guided Enron through its bankruptcy proceedings. The once-$60 billion energy company filed for bankruptcy in 2001 after revelations of massive accounting fraud.
FTX Group — composed of FTX and its 100-plus sister companies and international entities — didn’t keep appropriate books or records, Ray said, adding that Bankman-Fried and co-founder and former Chief Technology Officer Gary Wang engaged in “unacceptable management practices” including the use of unsecured email to access critically sensitive company data and the use of sophisticated software “to conceal the misuse of customer funds.”
Ray also called out the “absence of independent governances” between Alameda Research and FTX.com, which was the focus of the Nov. 2 CoinDesk article that spurred the tumbling of the Bankman-Fried crypto empire.
Bankman-Fried, who remains in the Bahamas but may soon be extradited to the U.S. for questioning, was nearly mum over the weekend save a handful of cryptic tweets but has since opened up to the press in interviews with The New York Times and Vox.
In now-public Twitter direct messages with Vox reporter Kelsey Piper, Bankman-Fried was asked if his previous talk of regulation — something he, until his company collapsed, was publicly supportive of — was “just PR.”
“[Y]eah just PR,” he said. “[F]uck regulators … [t]hey make everything worse.”
Though he said consumer protection of some kind would be good, “regulators can’t do it.”
After his exchange with Piper went public, Bankman-Fried went into damage control mode on Twitter, saying, among other things, “It's *really* hard to be a regulator. They have an impossible job: to regulate entire industries that grow faster than their mandate allows them to … [T]here are regulators who have deeply impressed me with their knowledge and thoughtfulness. The CFTC has; the SCB, and VARA, too. And others, scattered. But most are overwhelmed.”
Ray released a statement Wednesday on FTX’s Twitter page addressing Bankman-Fried’s recent public statements, noting that Bankman-Fried resigned from FTX Group on Nov. 11.
“Mr. Bankman-Fried has no ongoing role at @FTX_Official, FTX US, or Alameda Research Ltd. and does not speak on their behalf,” Ray tweeted.
Rep. Maxine Waters, D-CA, chairwoman of the House Financial Services Committee, and Rep. Patrick McHenry, R-NC, the panel’s ranking member, said Wednesday they’d hold a bipartisan hearing into FTX’s collapse in December.
The committee expects to hear from Bankman-Fried and other former FTX Group executives.
“The fall of FTX has posed tremendous harm to over one million users, many of whom were everyday people who invested their hard-earned savings into the FTX cryptocurrency exchange, only to watch it all disappear within a matter of seconds,” Waters said.
With FTX just one of several crypto collapses this year — alongside Celsius, Voyager Digital and others — Waters called for regulation.
“We need legislative action to ensure that digital assets entities cannot operate in the shadows outside of robust federal oversight and clear rules of the road,” she said.