Here is the real FTX failure explained by the new CEO
John Ray, bankruptcy specialist and new FTX administrator, described the cryptocurrency platform's "unprecedented" situation: inexperienced executives, poor oversight, houses bought with company funds. All the details
"Never in my career have I seen such a complete failure of corporate controls and such a total absence of reliable financial information as in this case." These are the words of John Ray, appointed CEO of FTX after the major cryptocurrency exchange filed for bankruptcy a week ago.
“UNPRECEDENTED SITUATION,” SAYS BANKRUPTCY EXPERT
Ray is a bankruptcy specialist, having dedicated forty years of his career to managing them: he is best known in the sector for having managed the bankruptcy of the large US energy company Enron, in 2001. Yet he says he has never seen a situation as serious as that of FTX.
In a court document in Delaware, where the bankruptcy lawsuit is taking place, Ray speaks of an "unprecedented situation." There were many things wrong with FTX, he said: “from compromised systems integrity and faulty regulatory oversight abroad, to concentrating control in the hands of a very small group of inexperienced, gullible and potentially compromised individuals ”.
THE IMPACT OF THE FTX FAILURE
The failure of FTX – very popular in the United States (it has about a million users here) and promoted by celebrities such as actor Larry David and ex-basketball player Shaquille O'Neal – has upset the cryptocurrency market. Binance, platform rival of FTX and its former investor, has anticipated the launch of a bailout plan for the sector.
FTX is estimated to have over a million creditors. According to Ray, a "substantial portion" of its assets may be "missing or stolen".
CONTRASTING VERSIONS
The founder of FTX, who resigned from his position as director after the bankruptcy, Sam Bankman-Fried, argues instead that the company is still solvent, that is, able to repay its debts. Bankman-Fried is in the Bahamas, where FTX is based, and US authorities are considering extraditing him to the US.
Ray, by contrast, said he has "significant concerns" about FTX's financial condition. He explained that the company's payments were authorized "through an online 'chat' platform where a diverse group of supervisors approved disbursements by replying with personalized emojis."
HOMES PURCHASED WITH CORPORATE FUNDS
“In the Bahamas,” he added, “I understand that FTX Group corporate funds have been used to purchase homes and other personal property for employees and consultants. I understand that for some of these transactions there does not seem to be any documentation."
THE DOCUMENTS OF THE FINANCIAL TIMES
According to some documents obtained by the Financial Times , the day before the collapse, FTX had liquid (ie easily sellable) assets of 1 billion dollars and liabilities of 9 billion. Ray's team unearthed approximately $740 million in cryptocurrencies held by FTX and other affiliated companies.
WHAT HAPPENED TO FTX, IN A SHORT
FTX's collapse came after Bankman-Fried used $10 billion from the platform's client funds to prop up its Alameda Research fund, which had suffered losses as cryptocurrencies plummeted.
FTX, as a result, was left without sufficient resources to cover the wave of withdrawals triggered by the decline in FTT, the platform's cryptocurrency.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/ftx-bancarotta-john-ray/ on Fri, 18 Nov 2022 08:29:05 +0000.