Former FTX CEO Sam Bankman-Fried took out a $1 billion personal loan from one of four companies deeply involved in the collapse of the FTX cryptocurrency exchange.
An official statement from FTX’s new CEO, John Ray III, still pending Chapter 11 bankruptcy filings, reveals further misuse of funds by Bankman Fried. took it out.
According to the filing, Alameda Research loaned $1 billion directly to Bankman-Fried, while FTX engineering manager Nishad Singh received a $543 million loan from the company.
FTX’s new CEO, Ray III, was pretty stern in his initial filing with the United States District Court for the District of Delaware.
Describing the current conditions as the worst he has ever seen in his corporate career, the CEO underlined the complete failure of corporate controls and the absence of reliable financial information, and made the following sentences:
“From risky systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, uninformed and potentially compromised individuals, this is unprecedented.”
Chapter 11 application to four business groups associated with FTX’s corporate organization; It aims to enforce controls over accounting, auditing, cybersecurity, human resources, data protection and other systems.
The four silos that make up the FTX Group
Ray III identifies four “silos” that include a number of different businesses that make up the FTX Group. The “WRS” silo includes West Realm Shires Inc.’s subsidiaries, which include FTX US, LedgerX, FTX US Derivatives, FTX US Capital Markets and Embed Clearing.
Alameda Research is an independent silo in filing with its own subsidiaries, while Clifton Bay Investments LLC and Ltd, Island Bay Ventures Inc. and Debtor FTX Ventures Ltd enters the “Ventures” silo. The “Dotcom” silo includes FTX Trading Ltd and the exchanges operating under the umbrella of FTX.com.
According to Ray III’s application, all silos were controlled by Bankman-Fried, while small equity stakes were owned by former FTX chief technology officer Zixiao Gary Wang and Singh. Also, the WRS and Dotcom silos had a number of mutual funds, endowments, sovereign wealth funds, and third-party equity investors who were affected by the collapse of FTX.
The application contains other possible indictments about the inner workings of Bankman-Fried’s operations. These indictments include FTX Group failing to maintain centralized control of its cash, failing to maintain accurate bank account lists, and not paying enough attention to the creditworthiness of its banking partners.
Ray III also notes that the only arm that has performed a reliable audit with a notable accounting firm is the WRS silo. While the CEO was unable to find any audited financial statements for Alameda and Ventures silos, he expressed his concerns regarding the audited financial statements of Dotcom silo.
Also, the payment of funds was quite dysfunctional according to the application:
“FTX Group employees submitted payment requests via an online chat platform, where a different group of supervisors responded with personalized emojis and approved payments.”
Ray III also notes that corporate funds are used to purchase homes and personal items on behalf of employees and consultants, and there is a lack of documentation for transactions including loans.
Crypto storage in confusion
Oversight of cryptocurrencies, according to the Chapter 11 filing, has been in turmoil due to FTX Group’s poor record keeping or lack of security controls for its digital assets.
Bankman-Fried and Wang controlled the access of key businesses within the company to crypto assets. Ray III outlines unacceptable practices for the global corporate network, including using an unsecured group of email accounts to access secret private keys and critically sensitive data.
FTX Group also failed to perform daily settlement of cryptocurrencies and used software to hide misuse of client funds. This also allowed for Alameda’s implicit exemption from certain aspects of FTX.com’s automatic liquidation protocol.
In addition to all of this, debtors executing bankruptcy proceedings have secured only a fraction of the digital assets they hoped to recover. Cold wallets containing $740 million worth of cryptocurrencies have been seized, but it is not yet clear which silo the funds belong to.