FTX flags SBF’s team failures in ‘key functions’

FTX lacked basic accounting and financial controls and was run by a small group of people who were characterised by arrogance, incompetence and greed. This is stated in areport by the exchange and the related debtors.

The 45-page document contains details of missteps in records management, an actual absence of cybersecurity measures, and scant management experience in key areas such as finance.

The report is based on an analysis of a terabyte of electronic data, more than a million sources, and interviews conducted with 19 former FTX Group employees.

The document was prepared by lawyers, restructuring specialists, forensic accounting experts, cybersecurity specialists, computer engineering, cryptography and blockchain experts.

“FTX Group failed to implement proper controls in areas that were critical to safeguarding cash and digital assets. The organisation was under total supervision by a small group of people who … actually showed little interest in … implementing a proper system,” — said the exchange’s CEO, John Ray.

According to the executive, FTX was run by three inexperienced people — co-founders Sam Bankman-Fried (SBF) and Gary Wang, and former chief technology officer Nishad Singh — who “had recently finished college.”

They relied on “a mix of Google Docs, Slack conversations, shared drives, Excel spreadsheets and other non-standard solutions for managing their assets and liabilities.”

The exchange used QuickBooks accounting software, designed for small and medium-sized businesses, rather than for a firm operating across continents and platforms, Ray noted.

The report says that the FTX-affiliated market maker Alameda Research “often struggled to understand what its positions were, not to mention hedging or accounting for them.”

“Alameda is not auditable. … Sometimes we discover assets worth $50 million lying around that we forgot about; such is life,” the report’s authors quoted SBF.

According to the document, the management of private keys and seed phrases was organised with serious violations and without backups. In one case they were stored as plain text unencrypted on the FTX Group server, in another—in AWS Secrets Manager, access to which was available to many employees.

John Ray pledged to continue the work of identifying and recovering assets for creditors.

In November 2022, the top executive said that the company absolutely lacked control over cash movements and no reliable financial information.

In December hearings in Congress, Ray accused Bankman-Fried and his team of storing private keys unencrypted. In their actions, he saw “old-fashioned squandering”, rather than sophisticated, meticulously planned crimes.

Later, the then-head of the exchange stated there was a “substantial deficit” of capital for the platform. 

Bankman-Fried arrested in December 2022 on the Bahamas by order of the U.S. government. The Southern District of New York Court charged him in eight criminal counts in the investigation into the collapse of FTX.

In February 2023 the number of charges against SBF rose from 8 to 12.

One month later, Bankman-Fried faced charges of conspiring to violate campaign finance laws and bribery of Chinese authorities. As with other episodes, he pleaded not guilty.

The case is set to go to trial in October. Taken together, Bankman-Fried faces more than a hundred years in prison.

Earlier, former Alameda head Caroline Ellison and FTX co-founder Gary Wang pleaded guilty in connection with the collapse of the exchange. Later, following their example, CTO Nishad Singh followed suit of the crashed platform.

After extradition to the United States, Bankman-Fried was released on bail of $250 million.

In March, lawyers for the former FTX CEO reached an agreement with U.S. prosecutors on new terms of his release. The agreement must be approved by the court.