FTX advisors find ‘only a fraction’ of the company’s crypto assets

(Bloomberg) — Advisors now overseeing Sam Bankman-Fried’s FTX Group carcass are struggling to locate the company’s money and crypto after finding poor internal controls and records at the now-bankrupt company.

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“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of reliable financial information,” said John J. Ray III, the group’s new CEO who previously oversaw the liquidation of Enron Corp. ., in an affidavit filed with bankruptcy court.

Read the full statement filed in FTX’s bankruptcy case

Read the craziest parts of the new bankruptcy filing

“From compromised system integrity and deficient regulatory oversight abroad to the concentration of control in the hands of a very small group of inexperienced, inexperienced and potentially compromised individuals, this situation is unprecedented,” he added.

Advisers have found “only a fraction” of the FTX Group’s digital assets they hope to recover during the Chapter 11 bankruptcy, Ray said. They have so far secured about $740 million worth of cryptocurrency in offline cold wallets, a storage method designed to prevent hacks.

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

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

While restructuring consultants have had control of FTX for less than a week, they have seen enough to paint the crypto company as a deeply flawed venture. Lasting records of decision-making are hard to come by: Bankman-Fried often communicated through applications that were automatically deleted in a short period of time and asked employees to do the same, according to Ray.

FTX Group corporate funds were used to buy homes and other personal items for employees, Ray said. Some of the property was registered in the personal names of employees and FTX advisors, he wrote, and the company’s payout checks were not fit for a business.

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

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

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

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