According to FTX CEO John Ray III, the multibillion-dollar empire was managed by three inexperienced people “not long out of college,” who relied on “a hodgepodge” of online shared documents and communications across a series of different apps.
John J Ray III provided his first detailed account of FTX’s control failures in an April 9 court filing in a Delaware Bankruptcy Court.
Ray stated that his restructuring team “found extensive deficiencies in the FTX Group’s controls,” ranging from a lack of appropriate financial and accounting controls to an ineffective group management structure and record-keeping process.
To manage its assets and liabilities, FTX appears to have “relied on a hodgepodge of Google documents, Slack communications, shared drives, and excel spreadsheets.”
FTX used QuickBooks accounting software, which Ray said was designed for “small and mid-sized businesses” rather than a company that operates across “multiple continents and platforms” like FTX.
According to reports, FTX’s bookkeeping was neglected, with approximately 80,000 transactions left as unprocessed accounting entries in “catch-all QuickBooks accounts titled ‘Ask My Accountant.'”
Despite their inexperience, Ray emphasized that co-founders Sam Bankman-Fried and Gary Wang, as well as former engineering director Nishad Singh, had the “final voice in all significant decisions.”
“These three individuals, who had just graduated from college and had no experience in risk management or business management, controlled nearly every significant aspect of the FTX Group.”
An unnamed FTX executive noted Wang and Singh’s significant control over the company, saying that “if Nishad [Singh] got hit by a bus, the whole company would be done.” Gary [Wang] has the same problem.”
The company was unable to provide a complete list of its employees at the time of its bankruptcy filing in November 2022. FTX did not file its financials on time at the end of fiscal reporting periods and did not conduct back-end checks to identify and correct material errors.
The president of FTX.US, Brett Harrison, expressed concerns to Bankman-Fried and Singh about “the lack of appropriate delegation of authority, formal management structure, and key hires at FTX.US.”
In response, Harrison’s bonus was significantly reduced, and the firm’s internal counsel instructed him to apologize to Bankman-Fried, which he refused. Following the disagreement, Harrison reportedly resigned.
Ray stated in a court filing on February 6 that when he took over FTX in November 2022, there was “not a single list of anything” related to bank accounts, income, insurance, or personnel, resulting in a “massive scramble for information.”
He opposed the motion to appoint an independent examiner to the bankruptcy case, citing concerns that “inadvertent errors” could result in the destruction of “hundreds of millions of dollars of value.”
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