New FTX CEO John Ray III Says He Has Never Seen “Such a Complete Failure”

FTX CEO John Ray III condemns Sam Bankman-Fried: The collapse of FTX has put the company and former CEO Sam Bankman-Fried in a bad light. However, things are only getting worse as details continue to surface. That now includes new FTX CEO John Ray III’s scathing comments on his predecessor and the situation at FTX, which he described as a “complete failure.”

Complete failure: Ray served as the CEO of Enron after its accounting fraud scandal in 2001, so he is familiar with handling the aftermath of a disaster. But according to the new FTX CEO, the crypto exchange is home to the worst corporate dysfunction he has ever seen.

• In a filing with the US Bankruptcy Court for the District of Deleware, he said that “in his 40 years of legal and restructuring experience,” he had never seen “such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”
• He also commented that he had no confidence in the accuracy of the balance sheets for FTX and Alameda Research. He continued to say that they were “unaudited and produced while the Debtors [FTX] were controlled by Mr. Bankman-Fried.”

Poor management: The new FTX CEO also made note of the poor management of Sam Bankman-Fried and his team. According to him, the controls on systems and regulatory compliance were lackluster, with most of the control remaining in the hands of “inexperienced, unsophisticated and potentially compromised individuals.”

• The new FTX CEO also said that the control was held by a very small group at the company.
• In another alarming statement, he said he would be implementing controls for lacking or non-existent systems, including accounting, audit, cash management, cybersecurity, human resources, risk management, data protection, and more.
• Management practices prior to his arrival included an “unsecured group email account” that was used “to access confidential private keys and critically sensitive data for the FTX Group companies around the world.”

Missing funds: The introduction of a new CEO also uncovered missing assets and potential fraud. The new FTX CEO said that a “substantial portion” of assets held by the company might be “missing or stolen.” It is an alarming statement since there is an investigation into Sam Bankman-Fried over more than a billion in missing client funds.

• Ray’s comments followed reports on social media about the theft of hundreds of millions in cryptocurrency.
• There was also mention of software to “conceal the misuse of customer funds.” Software was also used in the Madoff Ponzi scheme to conceal fraudulent activity.
• Currently, FTX is working to get an accurate statement of cash and crypto assets, which will be able to give interested parties a better understanding of the “financial circumstances.”

Trouble in paradise: The Bahamas might be an ideal vacation destination, but things are not so bright when it comes to FTX. According to the new FTX CEO, in the Bahamas, “corporate funds of the FTX Group were used to purchase homes and other personal items for employees and advisors.”

• Ray commented that for some transactions, there is lacking documentation of them as loans and that “certain real estate was recorded in the personal name of these employees and advisors on the records of the Bahamas.”
• It was noted that companies in the FTX Group did not have proper corporate governance, especially when it came to companies in the Bahamas and Antigua. Many never held board meetings, either.

Sam Bankman-Fried’s behavior: The new FTX CEO has criticized Bankman-Fried’s behavior since the bankruptcy announcement. Among other things, the former CEO spoke out about regretting this decision to file for bankruptcy and attacked regulators. While he has tried to pull back since then, it is not the only time Bankman-Fried has made erratic and often misleading statements in the wake of FTX’s collapse.