FTX’s bankruptcy filing in the federal bankruptcy court on Thursday revealed many crazy things, like that most of FTX’s digital assets have not been secured.
The demise of Sam Bankman-crypto Fried’s empire was soberly assessed by John Ray, III, the new CEO of FTX, in a long-awaited declaration that was filed in a bankruptcy court in the United States on Thursday. An explosive series of events, including the disclosure of texts Bankman-Fried sent to a Vox reporter earlier this week, led to the bankruptcy court filing.
With his 40 years of expertise in the legal and restructuring fields, including his time as chief restructuring officer and CEO of Enron, one of the biggest corporate disasters in history, Ray set the tone for what he has discovered since FTX filed for bankruptcy protection 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,” Ray wrote. “This situation is unprecedented.”
Here are some revelations Ray made regarding Bankman-Fried and the FTX fiasco in federal bankruptcy court on Thursday.
1. Most of FTX’s digital assets have not been secured
On Thursday, Ray stated that while he now has authority over the numerous FTX trading and exchange platforms and Bankman-cryptocurrency Fried’s hedge fund Alameda Research, he has only “located and secured a fraction of the digital assets” he planned to retrieve. In fact, just $740 million worth of cryptocurrency, according to Ray, had been stored in fresh cold wallets. Ray noted the “dilutive’minting’ of approximately $300 million in FTT tokens by an unauthorised source” in the days following the petition and at least $372 million in unauthorised transfers that had occurred on the day FTX and Alameda filed for bankruptcy last week. FTT tokens, which made up a sizable portion of Alameda’s assets, were developed by FTX to promote trading on its exchange.
2. Nobody knows who the biggest customer creditors are of FTX.
Customers from all around the world used the cryptocurrency exchanges and platforms offered by FTX.com and FTX.US. However, Ray claimed he was unable to compile a list of the top 50 creditors for FTX that also included customers.
3. Alameda Research loaned $4.1 billion out to entities, including Bankman-Fried and his closest partners.
According to rumours, FTX financed Alameda Research, the hedge fund run by Bankman-Fried, billions of dollars in customer funds. However, Ray disclosed on Thursday that Alameda had committed $4.1 billion in related-party loans that were still unpaid as of the end of September. This included a $1 billion loan from Alameda to Bankman-Fried, a $543 million loan from Alameda to FTX cofounder Nishad Singh, and a $55 million loan from Ryan Salame, co-CEO of FTX, to finance the transactions.
4. FTX corporate funds were used to buy personal homes
At the Bahamas, where FTX is headquartered as well, Bankman-Fried resided in a luxurious resort. Corporate funds of FTX “were used to purchase homes and other personal items for Employees and Advisors” there, according to bankruptcy filings. The transactions and loans related to these real estate purchases, which were listed in the names of employees and advisors, were not supported by any evidence, according to Ray’s filing.
5. Personalized emojis to approve disbursements
Ray cited the fact that FTX employees “submitted payment requests through an online ‘chat’ platform where a fragmented group of supervisors approved disbursements by responding with unique emojis” as evidence of the absence of disbursement and proper business controls at FTX.
6. Alameda Research was one of the world’s biggest hedge funds
Alameda’s balance sheet indicated that as of the end of September, its total assets were $13.46 billion, according to the bankruptcy filing. The assets controlled by well-known billionaire hedge fund traders like Bill Ackman, Paul Tudor Jones, and Jeffrey Talpins are almost similar to that amount.
7. Audit opinions from the metaverse
Ray had never heard of Prager Metis, the company Bankman-Fried hired to provide audit views for his company’s international FTX trading platform. Ray claimed that he visited the company’s website to find out more information and found that Prager Metis referred to itself as the “first-ever CPA firm to officially open its Metaverse headquarters in the metaverse platform Decentraland.”
8. Alameda had a secret exemption on FTX.com
Bankman-Alameda Fried’s hedge fund may have had a trading advantage on the FTX.com trading platform, according to Ray’s disclosure on Thursday. Alameda reportedly had a “secret exemption” from “certain aspects of FTX.com’s auto-liquidation protocol,” according to the complaint.
9. Customer liabilities are not reflected in FTX financial statements
According to Ray, there will be “significant liabilities arising from crypto assets deposited by customers through the FTX US platform” for the FTX.US exchange and trading platform, which catered to American customers. He thinks the FTX exchange, which FTX clients outside the US used, may also have a large client liability. However, none of these liabilities are shown in the financial reports created when Bankman-Fried was in charge of FTX, according to Ray.
10. Ray has no confidence in any FTX balance sheet
Ray reiterates the same disclaimer in the filing after describing FTX-related financial statements. He states, “I do not have confidence in it,” because many of the balance sheets at FTX and Alameda were created when Bankman-Fried controlled and oversaw the business and were therefore unaudited.