FTX Bankruptcy CEO Says Record-Keeping Had Been ‘Near-Zero’

The CEO of FTX said the firm’s corporate infrastructure and record-keeping had been “near-zero.”

In prepared testimony that is to be delivered to the House Financial Services Committee, John J. Ray III — who became CEO of FTX on Nov. 11 after the collapse of the crypto exchange and 130 of its affiliated companies — outlined several management practices at the FTX Group that he identified as “unacceptable.”

“Although our investigation is ongoing and detailed findings will have to await its conclusion, the FTX Group’s collapse appears to stem from the absolute concentration of control in the hands of a very small group of grossly inexperienced and unsophisticated individuals who failed to implement virtually any of the systems or controls that are necessary for a company that is entrusted with other people’s money or assets,” Ray said in the prepared testimony.

He cited a computer infrastructure that gave senior managers access to customer assets without security controls, private keys that allowed access to crypto assets without security controls or encryption, and the ability of the FTX Group’s crypto hedge fund, Alameda, to borrow funds held at FTX.com.

Ray also pointed to a commingling of assets, a lack of complete documentation for investments, an absence of reliable financial statements, a lack of personnel in financial and risk management functions, and an absence of independent governance.

“With that understanding, as soon as I gained control on Nov. 11, I began implementing a restructuring plan that will serve as the roadmap for navigating the FTX debtor entities through Chapter 11 and to a final resolution with its customers and creditors,” Ray said.

The objectives of this plan include the implementation of controls via a new team of managers and third-party professionals, asset protection and recovery that has so far secured $1 billion of digital assets, and transparency and investigation that will provide an understanding of what led to the collapse of FTX.

Other objectives include efficiency and coordination, which includes working with subsidiary companies in other jurisdictions, and the maximization of value for stakeholders.

“A fundamental, overarching challenge with each of these objectives is that we are in many respects starting from near-zero in terms of the corporate infrastructure and record-keeping that one would expect to find in a multibillion-dollar international business,” Ray said in the prepared testimony.

The posting of these prepared remarks on the website of the House Financial Services Committee comes a day ahead of the committee’s hearing called “Investigating the Collapse of FTX, Part I.”

As PYMNTS reported Monday, the committee is also slated to hear testimony — presumably virtual — from the disgraced founder of the FTX Group, Sam Bankman-Fried.