Earlier on Thursday, FTX CEO John Ray III filed in the United States Bankruptcy Court for Delaware, the latest since the collapse of one of the world’s largest cryptocurrency exchanges.

Ray, who helped lead Enron through its own bankruptcy, did not mince words about the state of the company or the behavior of the former executive team, describing it as one of the worst examples of corporate control he had ever encountered. It was a damning remark from a man with 40 years of legal and restructuring experience.

Here are some of the most significant revelations from Ray’s filing:

1. Complete lack of financial and corporate control

“Never in my career have I seen such a complete failure of corporate control and such a complete lack of reliable financial information as has occurred here.”

Ray opened his file by blasting former management, including former CEO Sam Bankman-Fried, for management’s failure to catch and address the staggering multibillion-dollar hole in Alameda Research-FTX’s balance sheets. Losses to investors could reach $8 billion. But with non-existent or inadequate accounting, auditing and disbursement systems, it will take “some time” for Ray and his forensic investigators to uncover the truth.

2. Sloppy accounting will require forensic analysis.

“I do not consider it appropriate for the interested parties or the Court to rely on the audited financial statements as a reliable indication of the financial position of these [companies].”

The new FTX boss said he had “significant” concerns about the financial positions he was presenting to the court. The collapse of FTX exposed a huge hole in the company’s balance sheets, but until the blockchain analysis and forensic accounting expertise are completed, Ray said it is not “appropriate for stakeholders or the Court to rely” on the numbers presented.

Accurate financial data is a key metric for evaluating and investing in a company. Venture capital firms poured billions into Bankman-Fried and his companies, valuing them in the tens of billions of dollars.

A standard aspect of any venture capital investment is a due diligence period where the books are opened and audited financial statements are shown to potential investors. Ray’s claim that financial statements for many of FTX’s subsidiaries are unreliable raises new questions about the due diligence being done by some of the world’s biggest venture firms.

3. Penthouses, bonuses and personal belongings

“In the Bahamas, I understand that FTX Group corporate funds have been used to purchase homes and other personal items for employees and advisors. I understand that there appears to be no documentation of some of these transactions as loans and that certain real property is recorded in the personal name of these officers and advisers in the Bahamas registries.”

others reports have detailed lush bonuses allegedly given to FTX employees in the Bahamas. Ray’s documents show that corporate funds were used to buy homes for employees and advisers, sometimes in their names. The loans were not written down by FTX to these individuals — as is typical of similar arrangements at other companies. Instead, according to Ray, people were given the deeds to these properties, free and clear, in their own names.

Notably, Bankman-Fried’s $40 million penthouse briefly came on the market after the bankruptcy. It has since been removed from the public list.

4. Expense emoticons

“The debtors didn’t have the kind of repayment control that I think is appropriate for a business enterprise. For example, FTX Group employees submitted payment requests through an online ‘chat’ platform where a different set of supervisors approved payouts by responding with personalized emoticons.”

Despite an entire industry devoted to cost control and reimbursement, Bankman-Fried’s team uses internal messaging to put corporate funds into the hands of employees around the world. It’s unclear what platform FTX used, although the company is known to have used Slack for internal communications.

5. Advantage for Alameda

Unacceptable management practices include the use of unsecured group email […] to access confidential private keys and critically sensitive data […] the lack of daily reconciliation of positions on the blockchain, the use of software to conceal the misuse of client funds, Alameda’s secret release from certain aspects of FTX.comself-liquidation protocol and the lack of independent management […]”

Alameda Research, the secretive trading firm at the heart of the Bankman-Fried empire, trades FTX alongside other institutional and individual traders. However, the two firms were closer than publicly acknowledged in light of Ray’s declaration that Alameda had been secretly exempted from “some aspects” of FTX’s automatic liquidation protocol.

It is not immediately clear what aspects Ray is referring to. In crypto trading, liquidation is most analogous to a margin call, where a leveraged position is closed by the exchange due to a dramatic change in the price of the underlying asset.

CNBC made multiple requests for comment from Bankman-Fried.


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