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John Ray III was president of the Enron bankruptcy, so he knows what a company with toxic problems looks like. That is why Ray’s statement that the bankrupt crypto exchange FTX was the result of “a complete failure of corporate controls” carries a lot of weight.
In an FTX Chapter 11 of 30 pages bankruptcy filing Arriving before a Delaware court on Thursday, Ray also stated that an autopsy of the exchange’s data revealed “a complete absence of reliable financial information” and “compromised system integrity and deficient regulatory oversight.”
He had just started. In this “unprecedented” situation, Ray wrote, there was a “concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals.” Later in the document, he described FTX’s shoddy security in sharp terms:
Unacceptable management practices include using an unsecured group email account as the root user to access confidential private keys and critical sensitive data for the FTX Group companies around the world, the absence of daily reconciliation of positions on the blockchain, the use of software to expose the misuse of client funds, Alameda’s undisclosed exemption from certain aspects of FTX.com’s auto-liquidation protocol, and the absence of independent governance between Alameda (owned 90% by Mr. Bankman-Fried and 10% of the Mr. Wang) ) and the Dotcom Silo (in which third parties had invested).
By the end of the statement, Ray’s words seemed to make it clear that FTX’s actions under founder and former CEO Sam Bankman-Fried weren’t just incompetence. the lack of lasting records of decision-making.”
“Mr. Bankman-Fried often communicated by using applications that were automatically removed after a short time,” Ray said, “and he encouraged employees to do the same.”
Debtors, Ray said, did write things down. And in his position as the new CEO, the attorney has begun an investigation led by himself and a team that includes “a former director of enforcement at the SEC, a former director of enforcement at the CFTC, and a former chief of the complex fraud case.” and Cybercrime Unit of the United States Attorney’s Office for the Southern District of New York.”
All this in addition to research reportedly underway by the Department of Justice and the Securities Exchange Commission.
It may not be surprising to learn that in one interview with VoxSam Bankman-Fried reportedly revealed that he wishes his company had been more careful with its accounting.
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