FTX was run by three inexperienced people “not long out of college,” who relied on “a hodgepodge” of documents and communications shared online through a number of different apps to run the multibillion-dollar empire according to the report. FTX CEO John Ray III.
In a court on April 9 presentation in a Delaware Bankruptcy Court, John J Ray III gave his first detailed account of the control failures at FTX.
Ray claimed that his restructuring team had “identified major deficiencies in the controls of the FTX Group”, from a lack of adequate financial and accounting controls to an inadequate group management structure and record-keeping process.
FTX apparently “relied on a hodgepodge of Google docs, Slack communications, shared drives and Excel spreadsheets” to manage its assets and liabilities.
FTX used QuickBooks accounting software, which Ray said was designed for “small to medium-sized businesses” and not for a company that operates on “multiple continents and platforms” like FTX.
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FTX accounting was reportedly neglected, with around 80,000 transactions left as raw accounting entries in “general QuickBooks accounts titled ‘Ask My Accountant’.”
Ray stressed that co-founders Sam Bankman-Fried and Gary Wang, along with former engineering director Nishad Singh, had the “final say on all major decisions,” despite having very limited experience.
“These three people, fresh out of college and with no experience managing risk or running a business, controlled almost every major aspect of the FTX Group.”
Wang and Singh’s significant control over FTX was noted by an anonymous FTX executive who stated that “if Nishad [Singh] hit by a bus, the whole company would be finished. Same problem with Gary [Wang].”
It was noted that the company was unable to provide a complete list of its employees at the time of the bankruptcy filing in November 2022.
FTX failed to submit its financial statements on time at the end of the financial reporting periods and did not carry out back-end checks to identify and correct material errors.
Brett Harrison, president of FTX.US, raised concerns with Bankman-Fried and Singh regarding “the lack of proper delegation of authority, formal management structure, and key hires at FTX.US.”
In response, Harrison’s bonus was significantly reduced and he was ordered by the company’s in-house lawyer to apologize to Bankman-Fried, which he refused to do. Harrison was reported to have resigned following the disagreement.
I’m not sure how this is “new” as I have written and spoken publicly about the circumstances of my resignation from FTX US multiple times since January. https://t.co/b3apaHoOzT
—Brett Harrison (@BrettHarrison88) April 9, 2023
Ray stated in a February 6 court filing that when he took control of FTX in November 2022 there was “not a single list of anything” related to bank accounts, income, insurance or personnel, prompting a “massive fight to get information”.
He rejected the motion to assign an independent examiner to the bankruptcy case for fear that “inadvertent errors” could result in “the destruction of hundreds of millions of dollars.”
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