The new boss of the collapsed cryptocurrency exchange FTX has made a scathing assessment of the company in a court filing revealing it had suffered an “unprecedented and complete failure of corporate controls”.
The founder of the failed $US32 billion ($A47 billion) cryptocurrency exchange, Sam Bankman-Fried has seen his fortune disappear, while he faces criminal investigation in the Bahamas and a potential trip to the US for questioning over the disappearance of billions of dollars in customer funds.
FTX filed for chapter 11 bankruptcy along with around 130 affiliated entities, including controversial trading firm Alameda Research, which is alleged to have played a central role in the implosion last week.
US corporate restructuring expert John Ray is now in charge and has 40 years experience in insolvency but said he had never seen anything as bad as FTX.
“Never 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,” he wrote in a sworn declaration filed in a US court.
“From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”
Mr Ray previously dealt with the collapse of the energy giant Enron, which was once the seventh-largest in the US, but went bankrupt under the weight of years of illicit business deals and accounting tricks and saw its chief executive jailed.
While there could be more than one million creditors impacted by the FTX collapse, Mr Ray said a “substantial portion” of assets held by crypto exchange may be “missing or stolen”.
FTX is alleged to have secretly transferred up to $US10 billion ($A14.8 billion) of customer funds to Alameda to fund risky cryptocurrency trades prior to its collapse, which came after rumours of a liquidity crisis saw customers rush to pull their money out.
Mr Ray was appointed to lead the company just before FTX plunged into bankruptcy and Mr Bankman-Fried resigned as chief executive.
The court filings also alleged that Alameda lent $US1 billion to Mr Bankman-Fried and more than $US500 million to FTX co-founder Nishad Singh as of September 30.
So far Mr Ray’s firm has only secured a fraction of the missing money with about $US740 million ($1.1 billion) of cryptocurrency found in an offline cold wallet.
Mr Ray’s firm have told financial institutions to freeze withdrawals and reject any instructions from Mr Bankman-Fried, who Mr Ray also criticised.
Mr Bankman-Fried has given interviews stating he regrets filing for bankruptcy and claimed on Twitter the company is still solvent.
“My goal – my one goal – is to do right by customers,” he said. “I’m contributing what I can to doing so. I’m meeting in-person with regulators and working with the teams to do what we can for customers. And after that, investors. But first, customers,” he wrote on Twitter.
He reiterated in another tweet that his goal was “clean up and focus on transparency” and “make customers whole”.
But Mr Ray hit out at Mr Bankman-Fried for “erratic and misleading public statements”.
“Finally, and critically, the debtors have made clear to employees and the public that Mr Bankman-Fried is not employed by the debtors and does not speak for them. Mr Bankman-Fried, currently in the Bahamas, continues to make erratic and misleading public statements,” he wrote in the court filings.
“Mr Bankman-Fried, whose connections and financial holdings in the Bahamas remain unclear to me, recently stated to a reporter on Twitter: ‘F*** regulators, they make everything worse’ and suggested the next step for him was to ‘win a jurisdictional battle v Delaware.”
The court filings also revealed that Mr Ray has “substantial concerns” about the company’s financial statements.
“I do not have confidence in it and the information,” he wrote. He added that company payments were authorised “through an online ‘chat’ platform where a disparate group of supervisors approved disbursements by responding with personalised emojis”.
“In the Bahamas, I understand that corporate funds of the FTX Group were used to purchase homes and other personal items for employees and advisers,” he said.
“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 advisers on the records of the Bahamas.”
FTX “did not maintain centralised control of its cash” and failed to keep an accurate list of bank accounts and account signatories, Mr Ray also said in court filings.
Mr Bankman-Fried is facing intensifying investigations by prosecutors and regulators in both the US and the Bahamas, where the MIT graduate ran the doomed operation with a “cabal” of roommates from a luxury $US40 million ($A59 million) penthouse.
It came as the Supreme Court in the Bahamas named PwC provisional liquidators to oversee FTX’s assets.
A filing from the Bahamian liquidators revealed that “findings to date indicate that serious fraud and mismanagement may have been committed” at the company.
In Australia, KordaMentha was named voluntary administrator of the local FTX subsidiary on Friday, with around 30,000 customers hoping to claw back their money.
The securities regulator on Wednesday suspended FTX Australia’s financial services licence.
Mr Bankman-Fried appeared to regret some of what he had previously said on Twitter.
“Some of what I said was thoughtless or overly strong – I was venting and not intending that to be public. I guess at this point what I write leaks anyway,” he said on Wednesday.
The contagion from FTX collapse continues, with Brisbane-based crypto exchange Digital Surge freezing customer accounts because of its exposure, while other exchanges BlockFi and Voyager are teetering on the brink of collapse.
Meanwhile, the Australian government has pledged to introduce legislation to safeguard customer’s money and regulate crypto exchanges with new laws expected to be introduced into parliament next year.
— with Frank Chung