I have never seen such a failure of controls | Catch My Job


Sam Bankman-Fried, co-founder and CEO of FTKS, in Hong Kong, China, on Tuesday, May 11, 2021.

Lam Iik | Bloomberg | Getty Images

Newly appointed FTKS CEO John Ray III said nothing in a filing with the U.S. Bankruptcy Court for the District of Delaware, stating that “in my 40 years of legal and restructuring experience” he had never seen “such a complete failure of corporate controls and such a complete absence of reliable financial information like what happened here.”

Rai previously served as CEO of Enron after the implosion of the energy titan. He promised to cooperate with regulators in the investigation of FTKS founder Sam Bankman-Fried.

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In the filing, Ray revealed that he had “no confidence” in the accuracy of the balance sheets for FTKS and its sister company Alameda Research, writing that they were “unaudited and produced while in debt [FTX] controlled by Mr. Bankman-Fried”.

The document is a statement from Ray in his new role as CEO of FTKS and related entities, which filed for bankruptcy last week in an implosion that has left the crypto world reeling and investors reeling.

Ray criticized Bankman-Fried and his management team for what he described as a lack of system controls and regulatory compliance.

“The concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals” was unprecedented, said the former head of Enron’s recovery.

Ray said a “substantial portion” of assets held at FTKS may have been “missing or stolen,” following widespread reports on social media of the theft of hundreds of millions in cryptocurrency.

In coordination with regulators, Ray wrote, the Chapter 11 bankruptcy process would examine Bankman-Fried’s actions in connection with the collapse of FTKS.

Worryingly, Ray wrote that part of his remit will be to enforce controls and basic corporate standards such as “accounting, auditing, cash management, cyber security, human resources, risk management, data protection and other systems that did not exist or did not exist until the appropriate degree, before my appointment”.

Bankman-Fried and FTKS’ “management practices included the use of an unsecured group email account as root to access confidential private keys and critically sensitive data for FTKS group companies worldwide, the absence of daily reconciliation of positions on the blockchain, the use of software to conceal the misuse of client funds “.

Bankman-Fried was not immediately available for comment.

Sophisticated software was similarly used to conceal mislabeled and fraudulent customer positions in the 2008 collapse of Bernie Madoff’s Ponzi scheme.

FTKS is currently working on providing an accurate statement of cash and crypto assets. Ray said it would not be “appropriate for interested parties or the Court to rely on the audited financial statements as a reliable indication of the financial circumstances” of FTKS.


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