Report: FTX Failed Due to Pride, Greed, and Incompetence

• The report claimed that FTX kept minimal or no records of transactions and its activities.
• FTX allegedly had a total disregard for cybersecurity and safety protocols.
• Employees who opposed Bankman-Fried’s leadership were hit with extreme measures, according to the report.

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John J. Ray III, the new FTX CEO who is in charge of the exchange’s bankruptcy procedures, recently submitted a strongly worded interim report on the company’s operations. The 39-page passionate report was submitted to the US Bankruptcy Court for the District of Delaware and provides an update on FTX debtor’s attempt at recovery and the challenges faced so far. 

The report claimed that FTX lacked fundamental accounting and financial controls and was run by a small group of people who “stifled dissent.” It noted that the debtors “have had to overcome unusual obstacles due to the FTX Group’s lack of appropriate record keeping and controls in critical areas.”

The debtors wrote in the report,

These individuals stifled dissent, commingled and misused corporate and customer funds, lied to third parties about their business, joked internally about their tendency to lose track of millions of dollars in assets, and thereby caused the FTX Group to collapse as swiftly as it had grown.

The group added that “while the FTX Group’s failure is novel in the unprecedented scale of harm it caused in a nascent industry, many of its root causes are familiar: hubris, incompetence, and greed.” The collapse of FTX came quickly and shockingly in November last year. After a week of a liquidity problem, the exchange, which was valued at $32 billion in early 2022, filed for Chapter 11 bankruptcy on November 11. Following the crisis, criminal proceedings were filed against the company’s top executives.

Poor Control and Leadership at FTX

The report shared insight into the daily operations of FTX. It claimed that FTX was “a web of parallel corporate chains with various owners and interests, all under the ultimate control of Bankman-Fried.”

The report revealed that the exchange’s CTO, Gary Wang, and engineering director, Nishad Singh, also had considerable control over its operations. Both Wang and Singh have admitted their guilt and are working with law enforcement to support the legal process.

Bankman-Fried and his team reportedly had no tolerance for opposing views. The report cites accounts of workers who had unjustified negative consequences as a result of disagreements, including reduced bonuses or abrupt terminations to silence criticism.

As per the report, Bankman-Fried and other senior officials made private jokes about their tendencies to lose track of assets worth millions of dollars. Bankman-Fried was quoted as saying, “We sometimes find $50 million of assets lying around that we lost track of; such is life.”

FTX also kept minimal or no records of its daily trading activity, loans, and dealings with affiliated businesses. The report noted that “copies of key documentation—including executed loan agreements, intercompany agreements, acquisition and investment documents, bank and brokerage account statements, and contract and account information of all types—were incomplete, inaccurate, contradictory, or missing entirely.”

The company’s structure did not accommodate dedicated departments for financial risk management, auditing, or treasury. According to the report. important leaders such as chief financial officers, risk officers, and auditors were “missing at some or all critical entities.”

FTX’s debtors said they have “recovered and secured in cold storage over $1.4 billion in digital assets and have identified an additional $1.7 billion in digital assets that they are in the process of recovering.”

Meanwhile, Sam Bankman-Fried is slated to appear in court in October to face prosecution for charges including violating campaign finance laws and bribing a government official.

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