FTX Advisors Receive ‘Just a Fraction’ of the Company’s Crypto Assets

(Bloomberg) — Consultants now overseeing the demise of Sam Bankman-Fried’s FTX Group are struggling to find the company’s cash and crypto, citing weak internal controls and record-keeping.

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“Never in my career have I seen such a complete failure of corporate controls and such a lack of reliable financial information,” said John J. Ray III, the new chief executive officer of the group that oversaw Enron Corp.’s liquidation. before this. affidavit filed in bankruptcy court.

“From compromised system integrity and flawed regulatory oversight overseas, 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 said.

Advisors have “only a fraction” of the FTX Group’s digital assets they hope to recover during Chapter 11 bankruptcy, Ray said. So far they have received about $740 million of cryptocurrency in an offline cold wallet, a storage method designed to prevent hacks.

The company’s audited financial statements should not be trusted, Ray said. Consultants are working to rebuild the balance sheets of FTX entities from the bottom up, he said.

FTX did not maintain “centralized control of its cash” and failed to maintain an accurate list of bank accounts and account signatories, or pay sufficient attention to the creditworthiness of banking partners, according to Ray. Consultants don’t yet know how much money FTX Group had when it filed for bankruptcy, but they have found about $560 million attributable to various FTX entities so far.

Although restructuring advisors have been in charge of FTX for less than a week, they have seen enough to portray the crypto company as a deeply flawed enterprise. Durable records of decision-making are hard to come by: Bankman-Fried is often informed by requests that automatically delete early and ask employees to do the same, according to Ray.

FTX Group’s corporate funds were used to buy homes and other personal items for employees, Ray said. Some of the real estate recorded the personal names of FTX employees and consultants, he wrote, and the company’s disbursement controls were not suitable for business.

“For example, FTX Group employees submitted payment requests through an online ‘chat’ platform where a diverse group of supervisors approved payouts by responding with personalized emojis,” according to the statement.

The case is FTX Trading Ltd., 22-11068, U.S. Bankruptcy Court for the District of Delaware.

(Updates with additional information from the statement beginning in the penultimate paragraph.)

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