10 crazy things detailed in FTX’s bankruptcy filing

On Thursday, John Ray, III, the new CEO of FTX, dropped a long-awaited declaration in the United States bankruptcy court, giving a sober assessment of the collapse of the Sam Bankman-Fried crypto empire. The bankruptcy court filing followed a flurry of events, including the publication of explosive texts Bankman-Fried sent to a Vox reporter earlier this week.

Ray set the tone for what he discovered from FTX’s filing for bankruptcy protection last week, citing his 40 years of experience in the legal and restructuring business, including a role as chief restructuring officer and CEO of Enron, one of the biggest corporate collapses ever. .

“Never in my career have I seen such a failure of corporate controls and lack of reliable financial information as here,” Ray wrote. “This situation is unprecedented.”

Here are 10 revelations Ray made in federal bankruptcy court Thursday about Bankman-Fried and the FTX debacle it created.

1. Most FTX digital assets are not secured

On Thursday, Ray made it clear that while he now controls the various trading and exchange platforms FTX and the Bankman-Fried Alameda Research crypto hedge fund, he had “located and secured only a fraction of the digital assets” he had hoped for. to recover. In fact, Ray said that only about $740 million of cryptocurrency was received in a new cold wallet. Ray cited at least $372 million in unauthorized transfers that occurred the day FTX and Alameda filed for bankruptcy last week, and the “dilutive minting” of approximately $300 million in FTT’s views from an unauthorized source” in the days after the filing. . FTX created FTT tokens to facilitate trading on its exchange and accounted for a large portion of Alameda’s assets.

2. No one knows who FTX’s biggest customer creditors are.

FTX.com and FTX.US had customers around the world who used their cryptocurrency exchanges and platforms. But Ray said he was unable to create a list of FTX’s top 50 creditors that included customers.

3. Alameda Research loaned $4.1 billion to entities, including Bankman-Fried and its closest associates.

FTX reportedly lent billions of dollars in customer funds to Bankman-Fried’s hedge fund, Alameda Research. But on Thursday, Ray revealed that Alameda had made $4.1 billion in related party loans outstanding at the end of September. This included a $1 billion loan made by Alameda to Bankman-Fried itself, a $543 million loan made to FTX co-founder Nishad Singh, and $55 million borrowed by FTX co-CEO Ryan Salame.

4. FTX corporate funds were used to purchase personal homes

Bankman-Fried lived in a luxury resort in the Bahamas, where FTX was also based. In it, bankruptcy filings say, FTX’s corporate funds were used “to purchase homes and other personal items for employees and consultants.” Ray said in his filing that there is no documentation regarding the transactions and loans related to these real estate purchases, which were recorded in the personal names of the employees and consultants.

5. Personalized emojis to allow payouts

To illustrate the lack of disbursement and proper business controls at FTX, Ray pointed out that FTX employees “submitted payment requests through an online ‘chat’ platform where a group of disparate supervisors approved disbursements by responding with personalized emojis.”

6. Alameda Research was one of the largest hedge funds in the world

According to the bankruptcy filing, Alameda’s balance sheet showed $13.46 billion in total assets at the end of September. That’s roughly equivalent to the assets managed by famous billionaire hedge fund traders like Bill Ackman, Paul Tudor Jones and Jeffrey Talpins.

7. Audit opinions from the metaverse

Bankman-Fried obtained audit opinions for the FTX international trading platform portion of his business from Prager Metis, a firm Ray had not heard of before. Ray said he went to the firm’s website to learn more about it and found that Prager Metis described itself as the “first ever CPA firm to officially open its Metaverse headquarters in the Decentraland metaverse platform.”

8. Alameda had a secret exemption on FTX.com

Ray’s filing on Thursday indicated that Alameda hedge fund Bankman-Fried may have a trading edge on trading platform FTX.com. According to the filing, Alameda had “confidential immunity” from “certain aspects of FTX.com’s auto-liquidation protocol.”

9. Customer liabilities are not reflected in FTX’s financial statements

Ray expects that “the exchange and trading platform FTX.US, which served American customers, will have significant liabilities arising from crypto assets deposited by customers through the FTX US platform.” He believes that the FTX exchange may also have significant client liabilities that have been used by FTX clients outside the US. But none of these liabilities are reflected in the financial statements prepared while Bankman-Fried was running FTX, Ray said.

10. Ray has no confidence in any FTX balance sheet

Repeatedly in the filing, Ray offers the same disclaimer after detailing financial statements related to FTX. He notes that many of the balance sheets at FTX and Alameda are unaudited, and because they were produced while Bankman-Fried was running and controlling the company, “I don’t trust it.”

Leave a Reply

Your email address will not be published.