John Ray, who replaced Sam Bankman-Fried as CEO of crypto platform FTX, said in a new court filing that in his decades of experience overseeing some of the biggest bankruptcies ever, he had never seen anything as bad as FTX, including a “complete failure of corporate controls.”
Ray, who once led the infamous energy firm Enron through its bankruptcy proceedings, said in a sworn declaration filed on Nov. 17 with the U.S. Bankruptcy Court for the District of Delaware and obtained by The Epoch Times that what he saw under the hood of FTX was “unprecedented.”
“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 the declaration, which was filed in support of petitions for FTX’s Chapter 11 bankruptcy.
Citing over 40 years of legal and restructuring experience, including some of the biggest corporate failures in history, Ray elaborated on just how badly he thinks FTX was mismanaged before its collapse.
“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,” he wrote.
Once considered one of the more stable players in the loosely regulated crypto industry, FTX filed for Chapter 11 bankruptcy protection last week and its erstwhile boss, Bankman-Fried, resigned.
Key Corporate Controls ‘Did Not Exist’
Ray, who was named CEO and chief restructuring officer for FTX, in his declaration painted a picture of a tangled web of companies that lacked basic mechanisms of oversight, including around handling of customers’ funds.
In his role at the helm of FTX, Ray said one of his core aims is to implement controls and corporate standards including “accounting, audit, cash management, cybersecurity, human resources, risk management, data protection, and other systems that did not exist, or did not exist to an appropriate degree, prior to my appointment.”
Ray also wrote that there are “questions” about Bankman-Fried’s leadership that the Chapter 11 bankruptcy process would scrutinize.
Bankman-Fried, who earlier apologized for his role in the FTX collapse, did not immediately respond to a request for comment from The Epoch Times regarding Ray’s claims.
But in a series of posts on Twitter, Bankman-Fried said that his “one goal” at this stage “is to do right by customers.”
“I’m contributing what I can to doing so. I’m meeting in-person with regulators and working with the teams to do what we can for customers,” he wrote. “And after that, investors. But first, customers.”
Initially, it appeared that around 100,000 creditors would be impacted by FTX’s implosion, but an amendment (pdf) to the bankruptcy filing states that the total could actually be closer to 1 million.
‘More Effective Oversight of Cryptocurrency’
Not only has FTX’s collapse sent shockwaves through global crypto markets, it has also drawn the attention of Washington lawmakers.
“It is crucial that our financial watchdogs look into what led to FTX’s collapse so we can fully understand the misconduct and abuses that took place,” Sen. Sherrod Brown (D-Ohio), Senate Committee on Banking, Housing, and Urban Affairs chairman, said in a recent statement.
The implosion of FTX has prompted policymakers to put the crypto industry under a magnifying glass, with the potential for a regulatory crackdown.
“The recent failure of a major cryptocurrency exchange and the unfortunate impact that has resulted for holders and investors of crypto assets demonstrate the need for more effective oversight of cryptocurrency markets,” Treasury Secretary Janet Yellen said in a statement on Wednesday.
‘When It Rains, It Pours’
The downfall of FTX started on Nov. 2 when CoinDesk published exclusive balance sheet details from Alameda Research, a trading firm established by Bankman-Fried. The report exposed that a substantial amount of Alameda’s assets were held in FTT, a native token belonging to FTX.
CNBC would later publish a bombshell report that suggested Alameda was trading billions of dollars from FTX accounts without clients’ knowledge and leveraged FTT as collateral.
The unraveling of FTX picked up speed when Changpeng Zhao, CEO of its main rival, Binance, posted messages on Twitter questioning the stability of FTX operations and announcing it was liquidating its holdings of FTT.
A liquidity crunch ensued as FTX users rushed for the exits. Bankman-Fried said that on Sunday, the exchange experienced around $5 billion in withdrawals, the biggest amount “by a huge margin.”
“Because, of course, when it rains, it pours,” he said.
Bankman-Fried later scrambled to raise money, even approaching Binance for help.
After Bankman-Fried and Zhao initially announced a tentative deal that Binance would buy FTX’s businesses outside the United States and so toss FTX a lifeline, that later fell through.
Zhao reversed his offer to buy parts of FTX, citing reports of “mishandled customer funds and alleged U.S. agency investigations.”
Andrew Moran contributed to this report.
From The Epoch Times