On Thursday, John Ray, III, the new CEO of FTX, dropped a long-awaited statement in U.S. bankruptcy court, giving a sober assessment of the collapse of Sam Bankman-Fried’s crypto empire. The bankruptcy filing followed a whirlwind 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’s found since FTX filed for bankruptcy protection last week, citing his 40 years of experience in the legal and restructuring industry, including a role as chief restructuring officer and CEO of Enron, one of the largest corporate collapses ever.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of reliable financial information as here,” Ray wrote. “This situation is unprecedented.”
Here are 10 revelations Ray made Thursday in federal bankruptcy court about Bankman-Fried and the FTX debacle he caused.
1. Most of FTX’s digital assets are not secured
As of Thursday, Ray clarified that while he now manages the various FTX trading and exchange platforms and Bankman-Fried’s crypto hedge fund Alameda Research, he had “found and secured only a fraction of the digital assets” he hoped to recover. In fact, Ray said that only about $740 million in cryptocurrency was secured in new cold wallets. Ray cited at least $372 million in unauthorized transfers that occurred on the day FTX and Alameda filed for bankruptcy last week, and the “dilutive ‘minting’ of approximately $300 million in FTT tokens by an unauthorized source” in the days after submission. . FTT tokens were created by FTX to facilitate exchange trading and formed a large part of Alameda’s assets.
2. No one knows who FTX’s biggest creditors are.
FTX.com and FTX.US had clients all over the world using their cryptocurrency exchanges and platforms. But Ray said he couldn’t list FTX’s 50 largest creditors, including customers.
3. Alameda Research lent $4.1 billion to entities including Bankman-Fried and its close partners.
There are reports that FTX has lent billions of dollars in client 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 that were still outstanding at the end of September. This included a $1 billion loan Alameda made to Bankman-Fried himself, a $543 million loan to FTX co-founder Nishad Singh, and $55 million loaned by FTX co-CEO Ryan Salame.
4. FTX company funds were used to buy personal homes
Bankman-Fried lived in a luxury resort in the Bahamas, where FTX was also located. According to bankruptcy filings, company funds there from FTX were “used to purchase homes and other personal items for employees and consultants.” Ray said in his filing that there is no documentation for the transactions and loans associated with these real estate purchases, which were recorded in the personal names of employees and consultants.
5. Personalized emojis to approve payouts
Demonstrating the lack of payout and appropriate business controls at FTX, Ray pointed out that FTX employees “submitted payout requests through an online ‘chat’ platform where a disparate group of supervisors approved payouts by responding with personalized emojis.”
6. Alameda Research was one of the world’s largest hedge funds
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. Metaverse audit statements
Bankman-Fried received audit opinions for the FTX international trading platform as part of his business from Prager Metis, a company Ray had never heard of. Ray said he went to the company’s website to learn more about it and found that Prager Metis described itself as the “first ever CPA company to officially open its Metaverse headquarters in the Decentraland metaverse platform.”
8. Alameda had an undisclosed exemption on FTX.com
Ray’s filing on Thursday indicated that Bankman-Fried’s Alameda hedge fund may have had a trading advantage on the FTX.com trading platform. According to the filing, Alameda had a “secret exemption” from “certain aspects of FTX.com’s auto-liquidation protocol.”
9. Client liabilities are not reflected in FTX’s financial statements
Ray expects that the FTX.US exchange and trading platform, which serves US clients, will have “significant liabilities arising from crypto assets deposited by clients through the FTX US platform.” He believes that the FTX exchange used by FTX customers outside the US could also have significant customer liabilities. But none of these commitments are reflected in the financial statements prepared while Bankman-Fried ran FTX, Ray said.
10. Ray has no faith in an FTX balance
Over and over in the filing, Ray offers the same disclaimer after detailing FTX-related financial statements. He notes that many of the balance sheets at FTX and Alameda are unaudited, and that because they were prepared while Bankman-Fried was running and controlling the company, “I have no confidence in them.”