This article is more than 1 year old

FTX disarray declared 'unprecedented' by exec who cleaned up after Enron

Corporate funds bought employee homes, no accounting department, uncertainty about who's an employee, and other baffling behavior

John Ray III, CEO of FTX Trading Ltd, who succeeded disgraced founder Sam Bankman-Fried following the collapse of the once notionally valued $32 billion cryptocurrency exchange, told a Delaware bankruptcy court on Thursday that the company is a disaster unlike anything he has ever seen.

And Ray oversaw the 2001 dissolution of Enron, the largest corporate bankruptcy in US history at the time.

Enron has since been eclipsed in dollar terms by the fall of Lehman Brothers, with assets of $691 billion when the financial giant declared bankruptcy in 2008, but Ray still considers FTX – which sought bankruptcy protection last week – exceptional.

"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 in a court filing [PDF].

"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."

On a practical level, Ray isn't sure about the firm's assets or liabilities. With regard to, one of four business silos identified in the filing, the court filing notes,

"Mr. Bankman-Fried claimed that, by the end of 2021, around $15 billion of assets were on the platform, which according to him handled approximately 10 percent of global volume for crypto trading at the time." (The $32 billion valuation dates to January 31, 2022 and may reflect a broader set of assets.)

As for the segment, its consolidated balance sheet "shows total assets of $2.25 billion as of September 30, 2022." This includes cryptocurrency assets valued at $659,000.

Yet even this is unclear. Rays says that since this data was prepared by Bankman-Fried, "I do not have confidence in it, and the information therein may not be correct as of the date stated."

And he makes the same representations for the other business silos. In short, the current head of FTX isn't sure whether the company's books reflect reality.

One reason for that may be that the company doesn't list liabilities to customers on its balance sheets. Nor did it maintain centralized control of its cash.

"Cash management procedural failures included the absence of an accurate list of bank accounts and account signatories, as well as insufficient attention to the creditworthiness of banking partners around the world," Ray's court filing says.

Employee says what?

What's more, it's not clear who actually works for the company.

"The FTX Group’s approach to human resources combined employees of various entities and outside contractors, with unclear records and lines of responsibility," the bankruptcy filing explains.

"At this time, the Debtors [FTX] have been unable to prepare a complete list of who worked for the FTX Group as of the Petition Date, or the terms of their employment. Repeated attempts to locate certain presumed employees to confirm their status have been unsuccessful to date."

Nor does it appear the company had a functional accounting department. Ray says he's in the process of trying to produce reliable financial records but has outsourced this task because "The Debtors do not have an accounting department…"

There was an audit of the segment (the Dotcom Silo) but Ray clearly does not think much of the accounting business that supposedly vetted the company's numbers.

As he puts it in the court filing, "The audit firm for the Dotcom Silo was Prager Metis, a firm with which I am not familiar and whose website indicates that they are the 'first-ever CPA firm to officially open its Metaverse headquarters in the metaverse platform Decentraland.'"

Ray further notes that the company did not have fund disbursement controls appropriate for a serious business. He explains, "For example, employees of the FTX Group submitted payment requests through an on-line 'chat' platform where a disparate group of supervisors approved disbursements by responding with personalized emojis."

Also, Ray says that corporate FTX Group funds were used to buy real estate and goods for employees and advisors. "I understand that there does not appear to be documentation for certain of these transactions as loans, and that certain real estate was recorded in the personal name of these employees and advisors on the records of the Bahamas," he explains.

In conclusion, Ray emphasizes that the company's founder no longer speaks for FTX.

"Mr. Bankman-Fried, currently in the Bahamas, continues to make erratic and misleading public statements," observes Ray. "Mr. Bankman-Fried, whose connections and financial holdings in the Bahamas remain unclear to me, recently stated to a reporter on Twitter: 'F*** regulators they make everything worse' and suggested the next step for him was to 'win a jurisdictional battle vs. Delaware.'"

Bankman-Fried might do better to concern himself with legal options for dealing with extradition. ®

More about

More about

More about


Send us news

Other stories you might like