Welcome to the cryptocurrency empire of Sam Bankman-Fried, the ex-crypto king who filed for Chapter 11 bankruptcy on November 11. This empire was based on the FTX crypto exchange and Alameda Trading, a cryptocurrency hedge fund.
FTX was a place where anything, even the unimaginable, was accepted.
Everything was permitted, and there was no control to bring those who went too far to heel. There was no such thing as a red line.
The CEO considered one of his business funds to be his personal bank. Employees used business funds to purchase residences in the Bahamas, and no CEOs or other employees haven’t documented any of these transactions anywhere.
There may have even been fake employees, and the board of directors, which is also supposed to have complete control over what happens in the company, never met.
A critical description of FTX was provided on November 17 by John Ray, the new CEO in charge of reorganizing this empire of chaos, in a 30-page document filed with the United States Bankruptcy Court for the District of Delaware.
Page after page, Ray described an organization whose methods appear to be a catastrophe.
“Never in my career have I seen such a catastrophic collapse of corporate controls and such a complete absence of trustworthy financial information as occurred here,” Ray wrote. “From weakened system integrity and poor regulatory supervision abroad to the concentration of power in the hands of a tiny group of inexperienced, naive, and potentially corrupted persons, this situation is a total mess.”
Ray is not a newbie. He was the liquidator of Enron, the firm whose collapse remains one of the worst financial disasters in recent history.
Ray truly believes that Sam and his two partners, Zixiao “Gary” Wang and Nishad Singh, failed on several levels. “Many FTX Group’s firms, particularly those based in Antigua and the Bahamas, lack appropriate corporate governance.” The new CEO claimed. He also stated that “CEOs also used software to conceal the misuse of consumer money.”
Ray did not offer any other information. However, his comment totally opposes Backman Fried’s denial that a “back door” in the software allowed him to change the records without third parties, such as auditors and investors, noticing.
According to Reuters, FTX’s financials revealed a “back door” in the books developed with “bespoke software.” It was described as a means for Bankman-Fried to cook the books without being caught.
How did FTX work that led to this situation? FTX served as a safe, keeping the cryptocurrency of its clients. FTX fulfilled orders for their clients, accepting cash and purchasing cryptocurrencies on their behalf. This crypto exchange also utilized its own cryptocurrency FTT, as collateral on its balance sheet for unpredictable situations. Due to the volatility of FTT, this represented a large risk.
Then FTX leveraged its clients’ crypto assets to produce cash through borrowing or market-making via its sister company’s Alameda Research trading arm.
Then, according to John Ray, Bankman-Fried got a $1 billion personal loan from Alameda. Alameda also gave a personal loan of $543 million to Singh and a loan of $55 million to Ryan Salame, co-CEO of FTX Digital Markets, one of FTX’s affiliates. And this is how FTX CEOs become wealthy with minimum effort.
Later on, FTX’s collapse was caused by a lack of liquidity when clients attempted to withdraw funds from the platform. The liquidity issue appears to have resulted from FTX’s founder shifting $10 billion in client money from FTX to Alameda Research. FTX is facing a $1 billion to $2 billion loss right now.
“In the Bahamas, I understand that employees and advisors used company money from the FTX group to purchase mansions and other personal items themselves. I understand that there does not appear to be documentation for many of these transactions as loans and that certain real estate was recorded in the personal names of these workers and advisors on Bahamas records, “The seasoned executive stated.
He also stated that CEOs usually compensated employees for business expenses when employees requested them in a chat room, and CEOs instantly approved them with a special emoji.
Finally, Ray stated that he has yet to find some potential workers, hinting that they have either disappeared or do not exist. “At this moment, we cannot create an extensive list of who works for the FTX Group,” he explained. “To date, repeated attempts to identify certain workers to confirm their status have been unsuccessful.”