"The most damning details from new FTX CEO\u2019s report"

" The most damning details from new FTX CEO\u2019s report \r\n\r\n \r\n\r\nEarlier Thursday, FTX CEO John Ray III filed a declaration with the United States Bankruptcy Court for Delaware, the latest in the implosion of one of the world\u2019s largest cryptocurrency exchanges.\r\n\r\nRay, who helped shepherd Enron through its own bankruptcy, minced no words about the state of the company or the behavior of the former executive team, describing it as one of the worst examples of corporate controls he\u2019d ever encountered. It was a damning remark from someone who has 40 years of legal and restructuring experience.\r\n \r\n \r\n \r\nHere are some of the most significant revelations from Ray\u2019s filing:\r\n 1. A total lack of financial and corporate controls \r\n\r\n \r\n\r\n\u201cNever in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.\u201d\r\n\r\n \r\nRay opened his filing torching former management, including former CEO Sam Bankman-Fried, for the failure by leadership to catch and address a stunning, multibillion-dollar hole in the Alameda Research-FTX balance sheets. The losses for investors may reach as high as $8 billion. But with nonexistent or deficient accounting, auditing and disbursement systems, it will take Ray and his forensic investigators \u201csome time\u201d to uncover the truth.\r\n 2. Slipshod accounting will require forensic analysis. \r\n\r\n \r\n\r\n\u201cI do not believe it appropriate for stakeholders or the Court to rely on the audited financial statements as a reliable indication of the financial circumstances of these [companies].\u201d\r\n\r\n \r\nFTX\u2019s new chief said he had \u201csubstantial\u201d concerns about the financial positions he was presenting to the court. FTX\u2019s implosion revealed a massive hole in the company balance sheets, but until blockchain analysis and forensic accounting are completed, Ray said it was not \u201cappropriate for stakeholders or the Court to rely\u201d on the numbers presented.\r\n\r\nAccurate financials are a key metric for valuing and investing in a company. Venture capital firms poured billions into poster child Bankman-Fried and his companies, valuing them in the tens of billions of dollars.\r\n\r\nA standard aspect of any venture capital investment is a due diligence period, where books are opened and audited financials are shown to prospective investors. Ray\u2019s assertion that the financial statements for many of FTX\u2019s subsidiaries are unreliable raises fresh questions about the diligence performed by some of the world\u2019s biggest venture firms.\r\n 3.\u00a0Penthouses, perks and personal items \r\n\r\n \r\n\r\n\u201cIn the Bahamas, I understand that corporate funds of the FTX Group were used to purchase homes and other personal items for employees and advisors. I understand that there does not appear to be documentation for certain of these transactions as loans, and that certain real estate was recorded in the personal name of these employees and advisors on the records of the Bahamas.\u201d\r\n\r\n \r\nOther\u00a0 reports have detailed lavish \u00a0perks allegedly given to FTX employees in the Bahamas. Ray\u2019s filing indicated that corporate funds were used to purchase homes for employees and advisors, sometimes in their name. Loans were not recorded from FTX to those individuals \u2014 as is typical with similar arrangements at other companies. Instead, individuals were given the deeds to these properties, according to Ray, free and clear, in their own names.\r\n\r\nNotably, Bankman-Fried\u2019s $40 million penthouse briefly hit the market in the aftermath of the bankruptcy. It has since been removed from public listing.\r\n 4. Emoji for expenses \r\n\r\n \r\n\r\n\u201cThe Debtors did not have the type of disbursement controls that I believe are appropriate for a business enterprise.\u00a0 For example, employees of the FTX Group submitted payment requests through an online \u2018chat\u2019 platform where a disparate group of supervisors approved disbursements by responding with personalized emojis.\u201d\r\n\r\n \r\nDespite an entire industry devoted to expense controls and reimbursements, Bankman-Fried\u2019s team used internal messaging to release corporate funds into the hands of employees around the world. It isn\u2019t immediately clear what platform FTX used, although the company is known to have used Slack for internal communications.\r\n 5. An advantage for Alameda \r\n\r\n \r\n\r\nUnacceptable management practices included the use of an unsecured group email [...] to access confidential private keys and critically sensitive data [...] the absence of daily reconciliation of positions on the blockchain, the use of software to conceal the misuse of customer funds, the secret exemption of Alameda from certain aspects of\u00a0 FTX.com \u2019s auto-liquidation protocol, and the absence of independent governance [...]\u201d\r\n\r\n \r\nAlameda Research, the secretive trading firm at the heart of Bankman-Fried\u2019s empire, executed trades on FTX alongside other institutional and individual traders. The two firms were closer than publicly acknowledged, however, in light of Ray\u2019s declaration that Alameda was secretly exempted from \u201ccertain aspects\u201d of FTX\u2019s auto-liquidation protocol.\r\n\r\nIt isn\u2019t immediately clear what aspects Ray meant. In crypto trading, liquidation is most analogous to a margin call, where a levered position is closed out by an exchange due to a dramatic shift in an underlying asset\u2019s price.\r\n\r\nCNBC has made multiple requests for comment from Bankman-Fried.\r\n\r\n \r\n \r\n \r\n \r\n \r\n \r\n \r\n \r\n \r\n \r\n \r\n "

"The most damning details from new FTX CEO\u2019s report"

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