FTX debtors publish report on FTX group’s control failures

FTX debtors have released their first report stating that the failed crypto exchange lacked crucial financial and accounting procedures to protect customer assets. The investigation also exposed the company’s culture of repressing dissent and employees’ internal jokes about misplacing millions of dollars worth of assets.

In a press release on April 9, John J. Ray III, FTX’s new CEO and chief restructuring officer, said they were releasing the first report in the spirit of transparency as promised since the exchange filed for Chapter 11 bankruptcy.

He added that the paper provides details on their findings of how FTX Group failed to implement appropriate controls in areas critical for safeguarding customer assets.

The ongoing report is the first one the FTX debtors have released since Sam Bankman-Fried’s digital asset empire swiftly went bankrupt in November 2022, wiping out billions of dollars in client money.

The report elaborates on control failures by FTX Group’s previous management in crucial areas such as finance and accounting, governance, digital asset management, cybersecurity, and information security.

Despite having billions of dollars worth of assets and vast volumes of transactions, FTX reportedly “lacked key financial and accounting controls.” The debtors are still working to evaluate the circumstances that led to FTX’s demise and identify and obtain as much value as possible for creditors.

The report also claims that the FTX Group was firmly managed by a small group of people who showed no interest in implementing an adequate supervision or control framework, in contrast to the image it strove to build of a responsible firm.

It reveals that Bankman-Fried and top executives, such as former chief technology officer Gary Wang and former engineering director Nishad Singh, were to blame for FTX’s spectacular collapse due to their “hubris, incompetence, and greed.” 

The three impeded dissent, conflated and misused company and client funds, lied to third parties concerning their business, and joked internally about their inclination to lose track of assets worth millions of dollars.

Former FTX executives plead guilty to fraud charges

Several former executives are currently accused in the FTX case. The former CEO, Bankman-Fried, has entered a not-guilty plea to accusations of fraud and breaking campaign funding regulations. 

On the other hand, Singh has already admitted to fraud as part of a cooperation deal with authorities. Wang and former CEO Caroline Ellison have also cooperated with the government after entering guilty pleas to charges relating to their employment at FTX and Alameda Research last year.

The new report is anticipated to be the first in a series on pre-petition activities and issues before the Chapter 11 cases. FTX Trading Ltd.’s debtors are still working to evaluate the circumstances that led to FTX’s collapse and to find and recoup as much value as they can for creditors.