NEW YORK (AP) — The man who had to clean up Enron says the situation at FTX is even worse, describing what he calls a “total failure” of corporate control.
The filing by John Ray III, the new CEO of the bankrupt cryptocurrency company, contains a damning description of FTX’s operations under its founder Sam Bankman-Freed, from the lack of security controls to the use of business funds to buy employee homes and luxury goods.
“Never in my career have I seen such a complete failure of corporate control and such a complete lack of reliable financial information as here,” Ray said. “From compromised systems integrity and misguided regulatory oversight across borders to the concentration of control in the hands of a very small group of inexperienced, inexperienced and potentially compromised individuals, this situation is unprecedented.”
Ray was named CEO on November 11 after the company was on the verge of collapse and its previous management sought legal advice on what to do next. According to documents filed Thursday, Bankman-Fried was persuaded to relinquish control of the company by his lawyers, as well as his father, Joseph Bankman, a professor at Stanford Law School.
After his resignation, Bankman-Fried sought out interviews for news outlets and tweeted extensively in an attempt to explain his and the firm’s failure.
In an interview with online publication Vox, Bankman-Fried admitted that his previous calls for regulation of cryptocurrencies were mostly related to public relations.
“Regulators are only making things worse,” Bankman-Fried said, using a swear word for emphasis.
In a brief statement, Ray said that Bankman-Freed’s statements were “messy and misleading” and that “Bankman-Freed does not work for or speak for the Debtors.”
Ray noted that many FTX Group companies, especially those in Antigua and the Bahamas, lacked proper corporate governance and many never held board meetings. Ray also turned to using corporate funds to pay for houses and other things for employees.
“In the Bahamas, it is my understanding that FTX Group corporate funds were used to purchase homes and other personal items for employees and consultants. I understand that some of these transactions do not appear to be documented as loans, and that certain real estate was recorded in the personal names of these employees and consultants in the records of the Bahamas,” he said.
So far, the debtors have found and secured “only a fraction” of the group’s digital assets they hope to recover, with about $740 million of crypto stored in new cold wallets, a way to store crypto tokens offline, Ray said.
Ray was appointed CEO of FTX less than a week ago when the company filed for bankruptcy protection and its CEO and founder Bankman-Fried stepped down. A cryptocurrency exchange with billions of dollars in short filed for bankruptcy protection after the exchange experienced the crypto equivalent of a bank run.
In its filing for bankruptcy, FTX listed over 130 affiliated companies worldwide. The company valued its assets at between $10 billion and $50 billion, with a similar estimate of its liabilities.
Bankman-Fried was recently valued at $23 billion. According to Forbes and Bloomberg, which closely track the wealth of the world’s richest people, his net worth has all but evaporated.
FTX’s failure is not limited to finances. The company also had major sports sponsorships, including Formula One racing and a sponsorship deal with Major League Baseball. On Friday, Miami-Dade County made the decision to end its relationship with FTX, which means the venue where the Miami Heat game is played will no longer be known as the FTX Arena. Mercedes has been planning to remove the FTX from its race cars since last weekend.