5 Key Highlights From FTX Bankruptcy Filings

FTX supervisors would approve employee “payment requests” by responding with “personalized emojis”

article-image

Blockworks Exclusive art by axel rangel

share

By now, most in the cryptocurrency community have likely seen the FTX bankruptcy filings.

And as FTX’s new CEO John Jay Ray III put it, the internal management of the company was “a complete failure.”

“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 said.

Ray III also shared some other insight into how the Bahamas-based cryptocurrency exchange that has fallen from grace operated.

Here are the highlights:

1. Access to confidential private keys 

FTX did not comply with security controls with respect to digital assets. According to the filing, former CEO Sam Bankman-Fried and his co-founder and Chief Technology Officer Gary Wang “controlled access to digital assets of the main businesses in the FTX Group,” and used an unsecured group email account to access confidential private keys and other critically sensitive information. 

Loading Tweet..

2. Misuse of customer funds

Bankman-Fried’s free roaming days might soon be over after the bankruptcy filings revealed that FTX had used “software to conceal the misuse of customer funds” and ensured that Alameda was exempt from “certain aspects of FTX.com’s auto-liquidation protocol.”

Loading Tweet..

3. Unaudited financials

The four silos — or groups of businesses — which made up the FTX group all provided quarterly financial statements. But, Ray said, “because this balance sheet was unaudited and produced while the Debtors were controlled by Mr. Bankman-Fried, I do not have confidence in it and the information therein may not be correct.”

4. Loans to themselves

Alameda Research provided loans to, well, themselves. This includes, a $1 billion to Bankman-Fried himself, a $543 million loan to Nishad Singh, who according to his LinkedIn, was the director of engineering at FTX, and a $55 million loan to Ryan Salame, the CEO of FTX Digital Markets.

To make matters worse, it was likely that much of these corporate funds were “used to purchase homes.” 

5. No employee management

There was no employee management system, and “debtors have been unable to prepare a complete list of who worked for the FTX Group…or the terms of their employment.”

In fact, employees were paid by submitting “payment requests” on an “online chat platform.” Their supervisors will approve their requests and notify payment “by responding with personalized emojis.” 

Further, Bankman-Fried had often communicated on “applications that were set to auto-delete after a short period of time, and encouraged employees to do the same.”

Loading Tweet..

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Tags

Upcoming Events

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Avail.jpg

Research

Data publishing costs have historically been a bottleneck for rollups, and as more rollups launch, interoperability will continue to be a major challenge. Avail presents a potential solution to rollup fragmentation through its three products: Avail DA, Nexus, and Fusion, which together aim to unify the web3 experience.

article-image

Short-term “sell the news” reactions could follow new BTC price peaks months from now, industry watchers say — but only if history repeats itself

article-image

While crypto fundraising remains well off its bull market highs, Q1 data shows capital is returning to the space

article-image

Billed as a better BRC-20 fungible token standard, Bitcoin Runes launches tomorrow

article-image

Bitcoin miners need to explore unconventional energy avenues or be buried by the financial realities created by this halving

article-image

BlackRock’s iShares Bitcoin Trust continues to see daily positive net flows, though its inflow total for a single day hit a new low Wednesday

article-image

Binance is making moves, from receiving a new license in Dubai to switching its SAFU fund to USDC