john j. ray iii

FTX financial controls were a ‘hodgepodge’ of apps, says court filings

A court filing alleged apps such as Excel spreadsheets and Slack messages were used to manage the assets and liabilities of FTX and its entities.

FTX was run 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 to manage the multi-billion dollar empire, according to FTX CEO John Ray III.

In an April 9 court filing in a Delaware Bankruptcy Court, John J Ray III gave his first detailed account of the control failures at FTX.

Ray stated that his restructuring team had “identified extensive deficiencies in the FTX Group’s controls” from a lack of appropriate financial and accounting controls to an inadequate group management structure and record-keeping process.

FTX apparently “relied on a hodgepodge of Google documents, Slack communications, shared drives and excel spreadsheets” to manage its assets and liabilities, the filing says.

FTX used the accounting software QuickBooks, which Ray said was designed for “small and mid-sized businesses” and not for a firm that operates across “multiple continents and platforms” such as FTX.

Related: Names of non-US FTX users demanded by mainstream media outlets

FTX’s bookkeeping was reported to have been neglected as around 80,000 transactions were left as unprocessed accounting entries in “catch-all QuickBooks accounts titled ‘Ask My Accountant.’”

Ray emphasized that co-founders Sam Bankman-Fried and Gary Wang, along with former engineering director Nishad Sing, had the “final voice in all significant decisions” despite very limited experience.

“These three individuals, not long out of college and with no experience in risk management or running a business, controlled nearly every significant aspect of the FTX Group.”

Wang and Singh’s significant control over FTX was noted by an unnamed FTX executive who stated that “if Nishad [Singh] got hit by a bus, the whole company would be done. Same issue with Gary [Wang].”

It was noted that the company couldn’t provide a complete list of its employees at the time of bankruptcy filing in November.

FTX failed to file its financials on time at the end of financial reporting periods and did not carry out back-end checks to identify and correct material errors.

Brett Harrison, the president of FTX.US, raised concerns with Bankman-Fried and Singh regarding “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 he was instructed to apologize to Bankman-Fried by the firm’s internal counsel, which he refused to do. It was reported that Harrison resigned following the disagreement.

Ray stated in a Feb. 6 court filing that when he took control of FTX in November  there was “not a single list of anything” related to bank accounts, income, insurance or personnel, causing a “massive scramble for information.”

He pushed back against the motion to assign an independent examiner to the bankruptcy case out of fears that “inadvertent errors” could result in “hundreds of millions of dollars of value being destroyed.”

Magazine: US and China try to crush Binance, SBF’s $40M bribe claim: Asia Express

FTX CEO fights to keep lawyers as calls for removal intensify

Numerous parties have objected to the retention of Sullivan & Cromwell as lead counsel to FTX, citing conflicts of interest and insufficient disclosures.

The CEO of crypto exchange FTX has rejected calls for its law firm to be replaced as lead counsel in its bankruptcy case. 

John J. Ray III, who was appointed as the new FTX CEO on Nov. 11, filed a court motion on Jan. 17 arguing that Sullivan & Cromwell has been integral in taking control over the “dumpster fire” that was handed to him.

Ray suggested that retaining their services is in the best interest of FTX creditors, arguing:

“The advisors are not the villains in these cases. The villains are being pursued by the appropriate criminal authorities largely as a result of the information and support they are receiving at my direction from the Debtors’ advisors.”

U.S. Trustee Andrew R. Vara had filed an objection to the retention of the law firm on Jan. 14, citing two separate issues.

He claimed that Sullivan & Cromwell had failed to sufficiently disclose its connections and prior work for FTX. He also pointed out that based on publicly available knowledge, a former partner of the law firm became a counsel to FTX 14 months prior to the bankruptcy filing.

Meanwhile, lawyer James A. Murphy, who goes by the Twitter handle MetaLawMan, suggested on Jan. 14 that the prior work it had done for FTX was not the law firm’s only conflict of interest in the case.

He claimed that private equity firm Apollo Global has been buying up creditor claims from FTX customers for a fraction of their value. Murphy notes that Apollo’s chairman, Jay Clayton, is also employed by Sullivan & Cromwell, which has access to sensitive financial information.

The U.S. Trustee also believed that the current application to retain Sullivan & Cromwell was flawed, as they would “usurp” an independent examiner’s work and the parties would be duplicating their services at the expense of the FTX estate.

The Trustee had first called for the appointment of an independent examiner on Dec. 1, pointing to a part of the bankruptcy code that mandates the appointment of an examiner when certain debts exceed $5 million.

Related: SBF says Sullivan & Cromwell contradicted itself with insolvency claims

On Jan. 10, a bipartisan group of four U.S. representatives sent a letter to Delaware bankruptcy judge John Dorsey, requesting that he approve the motion to hire an independent examiner and expressed their disbelief that the law firm could be labeled as a “disinterested” party.

Dorsey, however, labeled the letter as “inappropriate ex parte communication,” and said he would not take it into account when he decides whether to appoint an independent examiner or approve the retention of Sullivan & Cromwell.

But Dorsey is set to consider the objection of an FTX creditor filed on Jan. 10 when deciding whether Sullivan & Cromwell should be retained, with the creditor also suggesting that the law firm’s previous work for FTX constitutes a conflict of interest.

Bahamas regulator denies asking crypto exchange FTX to mint new tokens

Bahamas regulator fights back against being “publicly challenged” by FTX against incorrect calculations of digital assets transferred under its control

The Securities Commission of The Bahamas (SCB) has denied FTX debtors’ claims and expresses concern that the investigation has been “impeded.”

According to a statement released on Jan. 3, the SCB has had to correct material misstatements made by John J. Ray III, the representative of the United States-based FTX debtors, in press and court filings.

The document stated that the Chapter 11 Debtors had “publicly challenged” the Commission’s calculations of digital assets transferred to digital wallets under the Commission’s control in Nov. 2022.

It argued that these statements were based on “incomplete” information and the debtors did not do due diligence by requesting information from the Joint Provisional Liquidators.

The statement added that the FTX CEO John J. Ray III made public statements alleging that the Commission instructed FTX to “mint a substantial amount of new tokens” under “oath” during a court filing before the United States House of Financial Services Committee.

The Chapter 11 Debtors have also alleged that the digital assets controlled by the Commission in the trust of FTX customers and creditors were “stolen,” without providing any substantiated bases for these claims.

The Commission shared concern that its investigation is being compromised by the Chapter 11 Debtors’ refusal to allow the Court Supervised Joint Provisional Liquidators access to FTX’s AWS System.

The SCB is hoping that the Chapter 11 Debtors will proceed with matters in good faith and in the best interest of customers and creditors of FTX, the announcement reads.

Related: FTX ordered to pay reimbursement fees to Bahamian regulators

The Bahamian securities regulator’s announcement comes after news from court filings in December 2022, where FTX lawyers claimed the Bahamas government reportedly requested that the former CEO of FTX, Sam Bankman-Fried (SBF), issue a new cryptocurrency controlled by local officials.

The initial reports claimed that the Bahamas regulator asked SBF to mint new digital assets worth hundreds of millions of dollars.

FTX’s new CEO John Ray coldly addresses SBF’s erratic tweets

The new CEO of FTX gave a curt statement in response to the series of intermittent tweets by former CEO Sam Bankman-Fried.

The new CEO and chief restructuring officer for the bankrupt FTX cryptocurrency exchange, John Ray, has icily responded to the erratic series of tweets from former CEO and founder Sam Bankman-Fried.

The official Twitter account of FTX on Nov. 16 tweeted a statement from Ray addressing Bankman-Fried’s recent public statements, reiterating he “has no ongoing role at [FTX], FTX US, or Alameda Research Ltd. and does not speak on their behalf.”

On Nov. 14 Bankman-Fried began a strange Twitter thread that — over the course of 40 or so hours — eventually spelled out “What HAPPENED” across nine tweets, he then went on to claim he was meeting with regulators, wanting to “do right by customers.”

Afterward, he began to lay out the finances and leverage of FTX and its sister trading firm Alameda Research on Nov. 16 claiming FTX’s leverage was around $13 billion, not $5 billion as he originally thought.

Related: Tom Brady and other celebrities named in class-action lawsuit against FTX

FTX’s downward spiral kicked off in early November with a series of events eventually leading to the exchange and its roughly 130 global subsidiaries filing for Chapter 11 bankruptcy in the United States on Nov. 11.

John J. Ray III took over as CEO on Nov.11 with FTX’s bankruptcy filings. He has gained notoriety for previously overseeing the bankruptcy of former fraudulent energy giant Enron which had around $63.4 billion in assets and was the largest corporate bankruptcy in U.S. history at the time.