The FTX disaster is "unprecedented"

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The man who had to clean up the mess at Enron says the situation at FTX is even worse, describing what he calls a "total failure" of corporate control.

The filing by John Ray III, the new CEO of the bankrupt cryptocurrency firm, presents a damning overview of FTX's operations under its founder Sam Bankman-Fried, from the lack of security controls to the trading funds being used. to buy houses and luxuries for employees.

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of reliable financial information as happened here,” Ray said. “From compromised systems integrity and flawed regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised people, this situation is unprecedented.”

Ray was named CEO on November 11, after the company nearly collapsed and his previous management sought legal advice on what to do next. Bankman-Fried was persuaded to relinquish control of the company by his lawyers and by his father, Joseph Bankman, a professor at Stanford Law School, according to Thursday's filing.

Since his resignation, Bankman-Fried has sought out media outlets for interviews and has been active on Twitter trying to explain himself and the company's failure.

In an interview with online news outlet Vox, Bankman-Fried admitted that his previous calls for crypto regulation were mainly for public relations.

“Regulators make everything worse,” Bankman-Fried said, using an expletive for emphasis.

In a brief statement, Ray said that Bankman-Fried's statements have been "erratic and misleading" and that "Bankman-Fried is not an employee of the Debtors and does not speak for them."

Ray noted that many of the FTX Group companies, particularly those in Antigua and the Bahamas, did not have proper corporate governance and many had never held a board meeting. Ray also addressed the use of corporate funds to pay for houses and other items for employees.

“In the Bahamas, I understand that FTX Group corporate funds were used to purchase homes and other personal items for employees and consultants. It is my understanding that there does not appear to be documentation for certain of these transactions as loans, and that certain real estate was registered in the personal names of these employees and advisers in the Bahamian registries,” he said.

So far, debtors have found and secured "only a fraction" of the group's digital assets they hope to recover, with around $740 million worth of cryptocurrency secured in new cold wallets, which is a way of keeping cryptocurrency tokens offline. Ray said.

Ray was named CEO of FTX less than a week ago when the company filed for bankruptcy and CEO and founder Bankman-Fried resigned. The embattled cryptocurrency exchange, billions of dollars short, sought bankruptcy protection after the exchange experienced the crypto equivalent of a bank run.

In its bankruptcy filing, FTX listed more than 130 affiliated companies around the world. The company valued its assets between $10 billion and $50 billion, with a similar estimate for its liabilities.

Bankman-Fried was recently estimated to be worth $23 billion. His net worth has all but evaporated, according to Forbes and Bloomberg, who closely track the net worth of the world's richest people.

FTX's failure goes beyond finances. The company also had major sports sponsorships, including Formula One racing and a sponsorship deal with Major League Baseball. Miami-Dade County decided Friday to end its relationship with FTX, meaning the venue where the Miami Heat will play will no longer be known as FTX Arena. Mercedes planned to remove FTX from its race cars starting last weekend.

The entry The FTX disaster is "unprecedented" was first published in Washington Hispanic.

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