Wed, December 07, 2022

Lack of Internal Controls Contributing to FTX Downfall

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FTX’s New CEO in A Court Filing Indicated He Has No Confidence in Financial Statements

Current management is racing to establish how much money FTX has today, according to the company’s new CEO. He claimed that inadequate controls over the company’s billions of cash and cryptocurrency assets under Sam Bankman-Fried had left current management in a panic.

John J. Ray is the new CEO of FTX. He was appointed shortly before the company filed for bankruptcy. His first attempt to explain what happened at the company was made Thursday in Delaware bankruptcy court. As the CEO of FTX, his first official act was authorizing the company’s bankruptcy filing. Mr. Ray expressed doubt in many of FTX’s financial statements. He claimed that the balance shows the firm possesses substantial assets that surpass its debts. Nevertheless, he has no faith in those figures.

There are several “unacceptable management practices,” as noted by Ray. These include the absence of audited financial statements, lack of board meetings, insufficient internal controls over money management, and nonexistent or not precise list of bank accounts holding the FTX money.

He said that FTX capitalized on the lack of monitoring to hide the misuse of client money and keep track of internal decision-making. FTX has only recovered around $740 million in digital assets belonging to FTX companies. Alameda Research is just a small portion of the total digital assets that the firm aims to retrieve.

John Ray Says the Cash Wasn’t Centrally Managed

The FTX Group’s assets are also missing, according to advisers currently in charge of the firm. Ray claimed that they have only found a small portion of the digital assets they want to recover during Chapter 11 bankruptcy. Over $740 million of cryptocurrency are in offline cold wallets. This is a storage method that prevents hacks.

According to Ray, “FTX did not maintain centralized control of its cash.” Neither did it pay sufficient attention to the creditworthiness of banking partners. Advisers are uncertain how much money the company had before filing for bankruptcy. So far, they have discovered about $560 million in funds linked to various FTX entities.

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