CEO in Charge of FTX Restructuring Calls It an ‘Unprecedented’ Mess

The filing paints a vivid picture of the chaos that characterized the cryptocurrency company’s finances, accounting and leadership under founder and former CEO

Sam Bankman-Fried.

It is Mr. Ray’s first detailed description of the state of FTX and related trading firm, Alameda Research, since taking over last Friday.

Mr. Ray wrote that the company can’t trust prior financial information produced by Mr. Bankman-Fried.

“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,” Mr. Ray said in the filing. “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.”

The filing was the most explosive development in the FTX bankruptcy case Thursday. In other news, Singapore’s investment company Temasek Holdings said it would write down its full $275 million investment in FTX in light of the crypto exchange’s financial position.

Temasek invested $210 million in FTX and $65 million in FTX US across two funding rounds from October 2021 to January this year. The government-owned company said it had conducted extensive due diligence on FTX over eight months, and believed the exchange had a “fee income model with no trading or balance-sheet risk.”

“It is apparent from this investment that perhaps our belief in the actions, judgment and leadership of Sam Bankman-Fried, formed from our interactions with him and views expressed in our discussions with others, would appear to have been misplaced,” Temasek said in a lengthy statement Thursday.

Mr. Bankman-Fried on Thursday also attempted to walk back on Twitter comments he made that called into question his sincerity about regulators and his view that the company shouldn’t have filed for bankruptcy protection.

On Wednesday, the news website Vox posted an article featuring screenshots of direct messages exchanged on Twitter between Mr. Bankman-Fried and a reporter,

Kelsey Piper.

In a part of the exchange, he said “f— regulators” and asserted that “they make everything worse.” He also implied that his advocacy for better crypto regulation in Washington was “just PR.”

Mr. Bankman-Fried said to the reporter that he regrets filing for bankruptcy protection, saying that if he hadn’t done that, “withdrawals would be opening up in a month with customers fully whole.” Many FTX customers have been unable to withdraw funds since the firm’s troubles started in earnest this month. 

“Sometimes life creeps up on you,” he said in one of the DMs, according to Vox, when discussing how FTX and his separate trading firm, Alameda Research, became so intertwined.

In his Twitter thread following the release of the article, Mr. Bankman-Fried retreated from some of those comments. He said regulators have an “impossible job” and that some agencies have deeply impressed him.

“Some of what I said was thoughtless or overly strong—I was venting and not intending that to be public,” he tweeted.

In the bankruptcy court filing, Mr. Ray took aim at Mr. Bankman-Fried, who stepped down last week but has talked publicly about FTX and attempts to make FTX’s customers whole.

Mr. Bankman-Fried “continues to make erratic and misleading public statements,” he wrote. He added that the company has made clear to the public and employees that “Mr. Bankman-Fried is not employed by the Debtors and does not speak for them.”

The filing went on to detail many areas of apparent abuse at the crypto exchange. 

Mr. Ray said that corporate money was used to purchase “homes and other personal items” for employees. Mr. Ray said that to his understanding, they weren’t recorded as loans.

Even prior audited financial statements were suspect, Mr. Ray said. He wrote that he had “substantial concerns” about the audited statements by FTX—which were provided to its venture capital investors—and said the court shouldn’t rely on them.

His team has located about $740 million in cryptocurrencies held by FTX and other companies related to Mr. Bankman-Fried. He called the amount “only a fraction of the digital assets of the FTX Group that they hope to recover.”

Total liabilities are unclear, he wrote, given that the amounts FTX owed customers weren’t reflected in FTX’s financial statements made under Mr. Bankman-Fried.

Mr. Ray alluded to an array of areas he could look to recover funds. He said there were $372 million in “unauthorized transfers” on the day the company filed for bankruptcy, while he had ordered a team of investigators to look into “what may be very substantial transfers of Debtor property in the Case days, weeks and months” before the filing.

He said FTX’s problems included “the use of software to conceal the misuse of customer funds” and “the secret exemption of Alameda from certain aspects of FTX.com’s auto-liquidation protocol.”

The exchange lacked accounting controls and expenses were approved on an internal chat, where “supervisors approved disbursements by responding with personalized emojis,” according to the filing.

Write to Eliot Brown at [email protected], Elaine Yu at [email protected] and Eric Wallerstein at [email protected]