- FTX filed for shock Chapter 11 bankruptcy in November after a week of liquidity crisis.
- On Sunday, its debtors released the first reports of the collapse of the crypto exchange.
- The report claimed lack of controls, including administration, governance and accounting.
“Arrogance, incompetence and greed” led to the bankruptcy of crypto exchange FTX, the debtors of the now-defunct FTX said in a statement. Sunday report Details of control failures on the exchange.
In a forceful 39-page report filed in the U.S. Bankruptcy Court for the District of Delaware, debtors, including FTX Trading and its affiliates, allege that FTX lacked basic accounting and financial controls and was under the command of a small group. I further claimed that it was below. of individuals who have “suppressed dissent”.
“These individuals tend to stifle dissent, mix and misuse corporate and customer funds, lie to third parties about their business, and lose track of millions of dollars of assets, according to internal sources. We made a joke and thereby caused FTX Group to collapse as quickly as it once did.It has grown,” the debtor wrote in its first report since the exchange’s collapse in November.
“The FTX Group failure is novel in that it caused damage on a scale unprecedented in the nascent industry, but many of its root causes are familiar: arrogance, incompetence and greed,” they said. Told.
The implosion of FTX was shocking and quick.exchange — value $32 billion Early 2022 — Filed Chapter 11 Bankruptcy November 11, 2011, one week after the liquidity crisis.
The crisis was quickly followed by criminal proceedings against company executives.
The co-founder and former CEO of a prominent exchange, Sam Bankman-Fried, has pleaded not guilty to a U.S. government criminal case against him and is set to go on trial in October.Another co-founder, Gary Wang, and former CEO of FTX subsidiary Alameda Research, Caroline Ellison, have pleaded guilty and are cooperating with prosecutors. Nishad Singh He also pleaded guilty.
The report was presented by FTX’s current CEO and Chief Restructuring Officer, John J. Ray III. Sunday’s press release. Debtors’ claims have been made public “in the spirit of the transparency we have promised since the beginning of the Chapter 11 process,” Mr Ray said.
Read on for three key allegations from the debtor’s report.
1. Lack of control over management and governance.
The report claimed that control and governance of FTX was largely confined to Bankman-Fried, Singh, and Wang.
In most cases, FTX also lacked independent or experienced personnel in the areas of finance, accounting, human resources, and information security, and “completely lacked an internal audit function,” the debtor filed. stated in the document. Board oversight is “virtually non-existent,” they added.
Also, the company had no organizational structure, and at the time of filing for bankruptcy, it didn’t even have a complete list of who its employees were, according to the filing.
2. Lack of financial and accounting controls.
According to the report, FTX relies on a small, unnamed external accounting firm for almost all of its basic accounting functions, and the firm does not appear to have expertise in cryptocurrencies or international financial markets. was. The debtor did not provide details of this appointment.
“FTX Group will determine whether external accountants are suitable for the role, given the size and complexity of FTX Group’s business, or whether they have sufficient expertise to describe a wide range of products. There is no evidence that the valuation was made by FTX Group, according to the exchange’s debtors.
Another issue mentioned in the report was the submission of expenses and invoices in Slack, approved with an emoji. According to the report, “These informal, ephemeral messaging systems are used to obtain approval for transfers of tens of millions of dollars, leaving only informal records of such transfers or no records at all. I didn’t.”
3. Lack of digital asset management, information security, and cybersecurity management.
The report also alleges that FTX failed to put in place “basic and widely accepted” security controls to protect its crypto assets.
It involves storing almost all crypto assets in internet-connected hot wallets, making them vulnerable to theft.
They also hadn’t effectively applied multi-factor authentication (MFA) to their staff and corporate infrastructure. According to reports, MFA requires you to provide two or more authentication methods, such as using passwords and one-time passcodes to your mobile phone, to verify your identity to access the system. In particular, we did not apply multi-factor authentication to Google Workspace and its password manager program.
“This lack is ironic given that FTX Group encourages customers to use MFA on their accounts. Bankman-Fried said via Twitter: Publicly Emphasizing the Importance of ‘2FA’ [Twofactor authentication]”a form of MFA for cryptographic security.
FTX debtors said they had “collected and secured over $1.4 billion in digital assets in cold storage and identified an additional $1.7 billion in digital assets under collection.”
FTX claims agent Kroll and legal representatives for Bankman-Fried, Wang, Ellison and Singh did not immediately respond to an Insider request for comment sent outside of normal business hours.
The action is in the United States Bankruptcy Court for FTX Trading Ltd., 22-11068, District of Delaware.