New FTX Report Highlights Importance of Treasury Management


The first interim report by the FTX Debtors published Sunday (April 9) takes harsh aim at the FTX Group’s profound lack of appropriate documentation and recordkeeping, as well as the company’s willful avoidance of executive oversight.

The lack of internal controls and oversight at the failed multibillion-dollar enterprise would almost be comical, verging on the absurd, if it weren’t so disastrous for the company’s millions of customers who lost billions of their hard-earned money.

“Key executive functions, including those of chief financial officer, chief risk officer, global controller and chief internal auditor, were missing at some or all critical entities,” the report stated. “Nor did the FTX Group have any dedicated financial risk, audit or treasury departments.”

At its peak, the FTX Group operated in 250 jurisdictions, controlled tens of billions of dollars of assets across its various companies, engaged in as many as 26 million transactions per day, and had millions of users.

The report added that “important treasury reports,” including information on daily liquidity, daily settlement, funding mismatches, concentration risk, and liability profiles, did not exist or were not prepared regularly at the company.

Read also: FTX Crypto Bankruptcy Filing Shows $8.6 Billion Shortfall

“Deposit checks collected like junk mail,” the FTX report revealed, separately claiming that top FTX Group leaders, “joked internally about their tendency to lose track of millions of dollars in assets.”

In light of the recent Silicon Valley Bank failure, PYMNTS has been reporting on how ongoing treasury management and internal diligence have taken on a renewed importance among CFOs.

“The FTX Group undoubtedly recognized how a prudent crypto exchange should operate because when asked by third parties to describe [what operational controls were in place] … it lied,” the FTX Debtors found.

At the time of its bankruptcy filing, the FTX Group did not have current or complete headcount lists of its employees.

‘Hilariously Beyond Any Threshold of Any Auditor’

The FTX Group was a sprawling, disorganized empire. Thirty-five of the over 100 FTX Group entities used small-business-focused QuickBooks software as their main accounting system, while another 56 entities within the group did not produce financial statements of any kind.

For a firm handling substantial financial assets across multiple business lines, this represents a failure of accounting procedure, policy and risk management.

The Debtor report found that “substantial accounts and positions” went untracked in QuickBooks, noting that FTX “did not employ” the software in a manner that would allow it to maintain accurate records.

“Digital asset transactions were tracked in QuickBooks using the generic entry ‘investments in cryptocurrency,’” the report stated, adding: “Approximately 80,000 transactions were simply left as unprocessed accounting entries in catch-all QuickBooks accounts titled ‘Ask My Accountant.’”

Billions transferred to the personal accounts of company insiders, including founder Sam Bankman-Fried, were similarly poorly labeled, if labeled at all — with several personal loans to Bankman-Fried recorded as, “Investment in Subsidiaries: Investments-Cryptocurrency.”

The FTX Debtor report found that in an internal communication, Bankman-Fried described Alameda as “hilariously beyond any threshold of any auditor being able to even get partially through an audit… I don’t mean this in the sense of ‘a major accounting firm will have reservations about auditing it’; I mean this in the sense of ‘we are only able to ballpark what its balances are, let alone something like a comprehensive transaction history.’”

“Such is life,” the disgraced crypto founder reportedly said.

“Come up with some numbers? Idk,” another FTX Group executive allegedly instructed an Alameda employee regarding valuations of the firm’s cryptocurrency positions.

See also: Sam Bankman-Fried, FTX and the Demise of the Cool Kids

A Canary in the Growth-at-All-Costs Coal Mine

PYMNTS has been tracking the emerging “new normal” of economic uncertainty and a challenging macroclimate wherein CFOs are seeking to modernize their business processes and reduce operating costs.

This renewed focus on maintaining strong fundamentals around liquidity management and financial discipline stands in contrast to the approach taken by FTX management and serves as an important reminder of the importance of the role of not just the CFO but the entire finance team within an organization.

Gary Wang, Nishad Singh, Caroline Ellison and Bankman-Fried, none of whom were long out of college and collectively boasted no experience in risk management or running a business, controlled nearly every significant aspect of the FTX Group.

Together they deprioritized or rejected advice to improve the internal control framework of their business, with Bankman-Fried in particular being viewed as having the final voice in all significant decisions.

As the new report stated, “any number of different controls routinely implemented by financial institutions and exchanges in established financial markets would be expected to have prevented [and] detected” the issues that led to FTX’s collapse.

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