FTX collapsed after a bank run and filed for bankruptcy on Nov. 11, the same day that Bankman-Fried resigned. But many details about how the exchange reached that point are only starting to emerge — with legal and regulatory action just beginning to take shape.
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“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” said Ray in the filing. “From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”
Here, Grid breaks down the latest developments in the FTX collapse.
The bankruptcy filing
FTX has filed for Chapter 11 bankruptcy protection, which allows a company to restructure its debts while continuing to operate, rather than liquidating entirely. Such filings are often made by major corporations during times of trouble.
Ray’s initial filing to a federal bankruptcy court in Delaware offers valuable insight into FTX’s questionable inner workings and paints a bleak picture of the company’s current status. Internal documentation is so sparse, Ray said in the filing, that the company does not have a complete list of who worked at FTX and the terms of their employment. Moreover, efforts to locate some employees to confirm their status have been unsuccessful.
There are also large gaps in fundamental accounting data. “Debtors do not yet know the exact amount of cash that the FTX Group held as of the Petition Date,” according to the filing.
It also lays out a complex web of companies controlled by Bankman-Fried and FTX co-founders Gary Wang and Nishad Singh — a Gordian knot that Ray is attempting to untangle.
FTX did not keep accurate, audited records or security controls, to such an extent that the company used unsecured email accounts to access private keys that allowed access to funds, Ray wrote. In his filing, he also criticized the misuse of corporate funds to purchase Bahamian real estate and the use of software to cover those misuses.
Regulators are circling
Members of the House Financial Services Committee and Senate Banking Committee have pointed to the regulatory ambiguity surrounding crypto as one reason FTX was allowed to grow to the size it did without the sort of controls applied to traditional financial entities.
“There is no sugarcoating it. The collapse has been a dumpster fire. Users left out to dry. Ecosystem in limbo,” said Rep. Patrick McHenry (R-N.C.) Wednesday during a House Financial Services Committee hearing. And lawmakers that historically have been supportive of crypto have spoken out.
“It’s obvious that Congress needs to regulate digital assets,” said Sen. Cynthia Lummis (R-Wyo.) during a Senate Banking Committee hearing on Monday, pointing to a comprehensive crypto regulation bill she co-authored with Sen. Kirsten Gillibrand (D-N.Y.). That bill has been seen as the leading prospect for legislative action on crypto, but its future is in jeopardy given Bankman-Fried’s extensive input in shaping the bill.
Customers want their money
As if the blowback wasn’t strong enough already, FTX customers are filing lawsuits against the company and its boosters — including Brady, David and NBA star Stephen Curry.
The lawsuit calls FTX a Ponzi scheme. It argues that while the celebrities involved disclosed their partnerships with FTX, they never disclosed the “nature, scope, and amount of compensation they personally received in exchange for the promotion.”
More suits will likely follow, as the full scope of FTX’s damages are just now beginning to be unraveled.
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