FTX Never Implemented any Controls over its Systems, Indicates FTX Debtor Report
According to the FTX debtors, the fallen crypto empire FTX never implemented sufficient controls over any of its systems and was operated by the wishes of Sam Bankman-Fried, Gary Wang, and Nishad Singh.
According to a press release on Sunday, April 9th, the FTX debtors have released their first interim report that discusses the lack of controls and oversight over every critical function of the exchange. The report summarizes the information extracted from “terabytes of electronic data and communications, more than one million documents, and interviews conducted with 19 former FTX Group employees, among other information.”
The new team in charge of the FTX bankruptcy have released their first interim report on the failures of control at FTX and related businesses.
It's 43 pages long, let's go through it 🧵https://t.co/zSmRhIyaf6
— Molly White (@molly0xFFF) April 9, 2023
The Trio Ran the FTX
The text of the report reveals that CEO Sam Bankman-Fried (SBF), Nishad Singh, and Gary Wang had “limitless power to direct transfers of fiat currency and crypto assets and to hire and fire employees, with no effective oversight or controls to act as checks on how they exercised those powers.” They rejected several pieces of advice to improve FTX Group’s control technology.
The report identifies the “hubris, incompetence, and greed” of this trio as the root cause behind the devastating collapse of the exchange. The report reads:
“These individuals stifled dissent, commingled and misused corporate and customer funds, lied to third parties about their business, joked internally about their tendency to lose track of millions of dollars in assets, and thereby caused the FTX Group to collapse as swiftly as it had grown.”
People who tried to improve the situation were met with backlash. An FTX US president resigned after he was suppressed following a disagreement with SBF over the lack of appropriate delegation of authority. Similarly, less than three months after his hiring, a lawyer was terminated after he raised concerns about Alameda Research, a hedge fund founded by SBF.
Furthermore, FTX operated without any appropriate organizational structure such that even at the time of bankruptcy filing, the Group “did not even have current and complete lists of who its employees were.”
As per the report’s findings, despite serving 250 jurisdictions and processing 26 million transactions per day at its peak, the exchange lacked fundamental accounting and financial controls. Employees at key positions were fresh graduates with no experience and knowledge to make them suitable for the job.
The report goes on to reveal that Fifty-six entities within the FTX Group did not produce financial statements of any kind. Thirty-five used non-enterprise solutions to manage their assets and liabilities. Conditions were so bad at Alameda that once SBF himself described the hedge fund as:
“Hilariously beyond any threshold of any auditor being able to even get partially through an audit.”
The report also highlights the trio’s lies about the degree of separation between FTX and Alameda. In fact, Alameda was granted special privileges. On July 31st, 2019, engineering director Nishad SinghSingh changed the code base to allow Alameda to withdraw unlimited crypto assets from FTX. A week later, he modified the code again to exempt Alameda from automatic liquidation.
July 31, 2019 Singh changed the code base to allow Alameda to withdraw unlimited amounts of crypto assets from FTX; and a week later modified it to exempt Alameda from automatic liquidation; the FTX group kept almost all crypto assets in hot wallets (SBF lied about using cold…
— Wu Blockchain (@WuBlockchain) April 9, 2023
Moreover, contrary to the claims of using cold wallets, FTX always kept all users’ funds in hot wallets. The bottom line is that there were few legitimate business practices at FTX, and it was destined to fail right from the start.
Nishad Singh and Gary Wang have already pleaded guilty to the charges and are corporating in the bankruptcy process. SBF had pleaded not guilty to any of the charges, including the recent bribery charges. The SBF trial will begin on October 2nd, 2023. If you wish to keep an eye on the case, don’t forget to check the news section, where we will be posting any updates.