FTX failure rooted in ‘hubris’ and ‘greed’, debtors report finds

NEW YORK – Failed crypto exchange FTX Trading lacked fundamental financial and accounting controls, stifled dissent within the company and joked internally about its tendency to lose track of millions of dollars in assets, according to a report by the company’s debtors.

The report is the first released by FTX debtors since Sam Bankman-Fried’s digital asset empire

rapidly collapsed into bankruptcy last November,

with billions of dollars in customer funds lost.

At the root of FTX’s spectacular collapse was “hubris, incompetence and greed” on the part of Bankman-Fried and top executives, including former engineering director Nishad Singh and former chief technology officer Gary Wang, the report said.

“Despite the public image it sought to create of a responsible business, the FTX Group was tightly controlled by a small group of individuals who showed little interest in instituting an appropriate oversight or control framework,” said the report.

“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.”

When FTX filed for Chapter 11 bankruptcy, the company did not even have a complete list of who its employees were, according to the report.

“We are releasing the first report in the spirit of transparency that we promised since the beginning of the Chapter 11 process,” FTX’s new chief executive and chief restructuring officer John Ray III said in a press release.

The debtors said they reviewed more than one million documents and analysed the cryptocurrency firm’s available financial records and electronic devices, as well as interviewed 19 employees, as they put together the overview of FTX’s control failures.

Digital assets worth more than US$1.4 billion (S$1.9 billion) have been recovered and secured in cold storage, the debtors said in the report. They added that an additional US$1.7 billion has been identified and is in the process of being recovered.

Despite asset levels of billions of dollars and enormous transaction volumes, FTX “lacked fundamental financial and accounting controls”, the report said.

“Reconstruction of the debtors’ balance sheets is an ongoing, bottom-up exercise that continues to require significant effort by professionals,” it added.

Bankman-Fried faces trial in October

after pleading not guilty to fraud and campaign-finance law charges. Singh pleaded guilty in February to fraud as part of a cooperation deal with prosecutors. Wang and Caroline Ellison, former chief executive of FTX’s sister trading house Alameda Research, pleaded guilty last year to charges in connection to their roles at the firms, and are working with the government. BLOOMBERG