New FTX CEO details ‘complete failure of corporate controls’ at crypto platform

The new CEO of FTX issued a searing indictment of the company’s operations Thursday in a court filing as part of the company’s ongoing bankruptcy process.

New CEO and restructuring officer John Ray wrote that the company had a striking lack of financial records, internal communications or even a clear idea of who worked there.

“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, who noted that he has more than 40 years of legal and restructuring experience including overseeing Enron when it declared bankruptcy, wrote in the filing.

Bahamas-based FTX had reigned until earlier this month as one of the largest cryptocurrency exchanges in the world and was valued earlier this year at $32 billion until its finances came crashing down in recent weeks. Its lawyers have indicated it may have more than 1 million creditors, and Reuters has reported that two unnamed sources said more than $1 billion in client funds may be missing. NBC News has not verified those reports.

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Ray took over after former CEO Sam Bankman-Fried stepped down on Friday.

Bankman-Fried and FTX did not immediately respond to requests for comment.

Throughout his filing, Ray insisted that the financial records of the organizations overseen by Bankman-Fried are frequently either nonexistent or untrustworthy.

It has so far only secured $740 million of its cryptocurrency, “a fraction of the digital assets of the FTX Group that they hope to recover.”

In the filing, his reviews of FTX-tied companies like Alameda Research and Clifton Bay Investments have a repeated refrain: “To my knowledge, none of these financial statements have been audited,” and “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.”

In part, he said, that’s because Bankman-Fried instituted a culture of not keeping communications records.

“One of the most pervasive failures of the FTX.com business in particular is the absence of lasting records of decision-making,” Ray said. “Mr. Bankman-Fried often communicated by using applications that were set to auto-delete after a short period of time, and encouraged employees to do the same.”

But it’s also not clear who worked for the company and in what capacity, he said. “At this time, the Debtors 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.”

FTX also simply did not have control of its cash, Ray noted. “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,” he wrote. He said he is still unable to tell how much cash the company has.

One of the audits that FTX did commission clearly did not impress Ray: “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.’”