FTX failure rooted in hubris and greed, debtors report says

Failed crypto exchange FTX Trading lacked fundamental financial and accounting controls, stifled dissent within the company and joked internally about their tendency to lose track of millions of dollars in assets, according to a report by the company’s debtors.

The report is the first released by FTX debtors since Sam Bankman-Fried’s digital-asset empire rapidly collapsed into bankruptcy in November, with billions of dollars in customer funds lost.

Sam Bankman-Fried has pleaded not guilty to fraud and campaign-finance law charges.Credit: Getty

At the root of FTX’s spectacular collapse was “hubris, incompetence, and greed” on the part of Bankman-Fried and top executives, including former engineering director Nishad Singh and former chief technology officer Gary Wang, the report said.

“Despite the public image it sought to create of a responsible business, the FTX Group was tightly controlled by a small group of individuals who showed little interest in instituting an appropriate oversight or control framework,” the report said.

“These individuals stifled dissent, commingled and misused corporate and customer funds, lied to third parties about their business, joked internally about their tendency to lose track of millions of dollars in assets, and thereby caused the FTX Group to collapse as swiftly as it had grown,” the report said.

When FTX filed for Chapter 11 of the US Bankruptcy Code, the company didn’t even have a complete list of who its employees were, according to the report.

“We are releasing the first report in the spirit of transparency that we promised since the beginning of the Chapter 11 process,” John J. Ray III, FTX’s new chief executive officer and chief restructuring officer, said in a press release.

Despite asset levels of billions of dollars and enormous transaction volumes, FTX “lacked fundamental financial and accounting controls. Reconstruction of the debtors’ balance sheets is an ongoing, bottom-up exercise that continues to require significant effort by professionals,” the report said.

Digital assets worth more than $US1.4 billion ($2.1 billion) had been recovered and secured in cold storage, the debtors said in the report. They added that an additional $US1.7 billion has been identified and was in the process of being recovered.

Former FTX engineering chief Nishad Singh pleaded guilty to fraud as part of a deal with prosecutors.Credit: Bloomberg

The debtors said they reviewed more than one million documents and analysed the cryptocurrency firm’s available financial records and electronic devices, as well as interviewed 19 employees as it put together the overview of FTX’s control failures.

Bankman-Fried faces trial in October after pleading not guilty to fraud and campaign-finance law charges. Singh pleaded guilty in February to fraud as part of a co-operation deal with prosecutors. Wang and former CEO Caroline Ellison pleaded guilty last year to charges in connection to their roles at FTX and its sister trading house Alameda Research and are working with the government.

Bloomberg

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