Former executives of the now-bankrupt cryptocurrency exchange FTX are being blamed for failing to implement the proper financial controls in the company.
This failure is said to have complicated the asset recovery process, according to a recent court filing made by the restructuring team for the failed exchange.
The representatives of FTX Trading Ltd. reported to the bankruptcy court in Delaware that the previous management team, which included founder Sam Bankman-Fried, failed to implement appropriate control measures. This failure, they said, “placed its crypto assets and funds at risk from the outset.”
The restructuring team’s report highlighted the fact that FTX lacked personnel who were knowledgeable enough to account for assets and liabilities accurately.
Moreover, the company did not have dedicated financial risk, audit, or treasury departments. The report was compiled after interviewing 19 former FTX employees and reviewing over one million documents and financial records.
FTX and its affiliates filed for Chapter 11 bankruptcy in the U.S. in November, and since then, they have managed to recover and secure over US$1.4 billion in digital assets in cold storage. Additionally, the company is in the process of recovering an additional US$1.7 billion in digital assets, according to the report.
The report also revealed that FTX Group was tightly controlled by a small group of individuals who showed little interest in instituting oversight or implementing an appropriate control framework. John J. Ray III, CEO, and chief restructuring officer of the FTX Debtors released a statement following the report, saying that the small group of individuals had falsely claimed to manage FTX Group responsibly.
In January, liquidators reported that they had recovered at least US$5 billion in liquid assets, including cryptocurrencies and securities, in an attempt to repay over nine million FTX users and creditors who lost an estimated US$8 billion worth of digital assets.
Sam Bankman-Fried, FTX’s founder, pleaded not guilty to eight charges related to the failure of FTX in January. He is out of detention on a US$250 million bail, one of the largest in U.S. history, as he awaits a court trial scheduled for October.
In December, Caroline Ellison, the former chief of Alameda Research, the trading arm of FTX, and former FTX chief technology officer Gary Wang pleaded guilty to several charges related to operations at the company. Nishad Singh, former engineering chief of FTX, pleaded guilty to fraud and several other criminal charges in late February.
