FTX’s new CEO: “Never in my career have I seen such a complete failure”

New FTX CEO John Ray III has decades of experience guiding companies through bankruptcy, including Enron following its infamous 2001 collapse. But nothing he has seen over his career compares to the problems at the cryptocurrency exchange just before it declared bankruptcy last week.

“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,” Ray said in court documents filed on Thursday. 

Among those shortcomings under former CEO Sam Bankman-Fried were imprecise accounting of the value of FTX’s crypto assets; sloppy employee management of the company’s cash holdings; and poor human resources practices, the documents suggest. 

Ray is a Chicago lawyer known as the turnaround specialist who restructured mortgage lender Residential Capital, oil tanker company Overseas Shipholding and other large corporations. FTX failed in part because the company was “in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals,” he said in the court filings.

“One of the most pervasive failures of the FTX.com business in particular is the absence of lasting records of decision-making,” the documents state. “Mr. Bankman-Fried often communicated by using applications that were set to auto-delete after a short period of time, and encouraged employees to do the same.”

FTX was once the darling of the crypto world, garnering almost $2 billion in private equity in three years. The company crashed in spectacular fashion last week, declaring Chapter 11 bankruptcy and sending shockwaves throughout the crypto industry. Bankman-Fried resigned from the company last week is now under investigation in the U.S. and abroad for possible securities violations.

“Unacceptable” business practices

For his part, Bankman-Fried said he has been trying to raise billions of dollars to repay FTX customers who lost money during the company’s meltdown. 

“My goal — my one goal — is to do right by customers,” he said in a series of tweets Wednesday. “I’m meeting in-person with regulators and working with the teams to do what we can for customers. And after that, investors. But first, customers.”

FTX’s collapse hasn’t rattled the crypto market for now. Bitcoin, ether, solana and litecoin were all flat in Thursday trading. 

Court documents also show detailed financial statements, some of which reveal that FTX had $1.3 billion in assets and owed $102 million to customers the day the company filed for bankruptcy. Yet those figures are questionable because they were recorded when Bankman-Fried was still at the helm and the company’s business practices were “unacceptable,” Ray said in court documents. 

Soon after Bankman-Fried’s departure, FTX moved about $740 million worth of cryptocurrency to offline storage known as a cold wallet custodian, court documents state. That amount doesn’t include an estimated $372 million that FTX lost during a cyberattack last week, documents state.