FTX collapse worse than Enron, claims cryptocurrency firm’s liquidator - THE TELEGRAPH
Collapsed cryptocurrency exchange FTX's financial records were worse than Enron, its administrator has claimed.
John Ray, who was appointed as FTX’s liquidator last week, told a US bankruptcy court in filings made public on Wednesday: “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.”
Mr Ray oversaw the winding up of US energy company Enron after its collapse in 2001. Enron's bankruptcy wiped the company's $60bn (£51bn) valuation to zero and triggered the collapse of global audit firm Arthur Andersen. Enron’s chief executive Jeffrey Skilling was subsequently sentenced to 24 years in jail after being convicted of charges including conspiracy, insider trading, securities fraud and making false statements to auditors.
Mr Ray said in the FTX filing that the company was run by a “a very small group of inexperienced, unsophisticated and potentially compromised individuals”, calling the situation “unprecedented”.
Executives would approve payment requests by “responding with personalised emojis” to messages on a company chat platform, the filing said.
Other filings reveal that FTX currently holds only about $740m in digital tokens, despite owing around $9bn at the time it filed for bankruptcy protection. It was valued at $32bn in a funding round earlier this year.
Mr Ray urged the court not to rely on balance sheets prepared under former chief executive Sam Bankman-Fried's watch, highlighting the lack of internal controls and difficulties establishing exactly what assets FTX owned and controlled. The company appears to have paid for property in the Bahamas that was registered to individuals, rather than the company, Mr Ray said.
The former Enron administrator also questioned the credentials of an audit firm that signed off on FTX's financials, noting that the company recently boasted of opening an office in Facebook's metaverse virtual world.
The scathing verdict comes as regulators around the world, including the US Department of Justice, investigate the collapse of FTX, which has left over one million creditors out of pocket.
A lawsuit against the company, Mr Bankman-Fried and celebrities who endorsed it, including NFL quarterback Tom Brady and Seinfeld co-creator Larry David, accused the company of orchestrating “a fraudulent scheme… designed to take advantage of unsophisticated investors”.
Since leaving the business, Mr Bankman-Fried has taken to Twitter to explain his decision-making. Mr Ray said these public statements were disruptive, with FTX’s official Twitter account saying: “Mr Bankman-Fried has no ongoing role at FTX, FTX US, or Alameda Research Ltd and does not speak on their behalf.”
Separately, Mr Bankman-Fried claimed he had puffed up his ethical credentials as part of a “dumb game we woke Westerners play” in an interview with online publication Vox.
The 30-year-old said his public stance on ethical issues was in part a “front” to burnish his reputation “so everyone likes us”.
Mr Bankman-Fried, who at one stage was worth around $16bn, was a self-proclaimed “effective altruist”, meaning he aimed to make as much money as possible in order to give it away to charities.
He appeared in multiple videos explaining his views on climate change and world poverty, and posted his thoughts on how to maximise his positive impact on the world on Twitter.
However, he told Vox: “Man all the dumb s*** I said… it’s not true really.”
On Twitter on Thursday morning, he added: “Some of what I said was thoughtless or overly strong. I was venting and not intending that to be public.”
He added: “What matters is what you do – is actually doing good or bad, not just talking about doing good or using ESG language.”
Crypto investors on Twitter have compared the collapse of FTX to Bernie Madoff, the American financier who ran the biggest Ponzi scheme scam in history worth over $60bn.
The company has been accused of misusing billions of pounds in customer deposits to FTX and secretly transferring them to a hedge fund, called Alameda Research, to make high risk investments.
Mr Bankman-Fried appeared to accept that he used customer funds to make questionable trades in his interview with Vox.
“It was never the intention,” he said, “sometimes life creeps up on you.”
He claimed: “Each step in isolation was rational and reasonable, and then when I finally added it all up last week it wasn’t.”
FTX, which was based out of a luxury Bahamas penthouse, filed for bankruptcy protection in the US last week.