Inside FTX: Jokes About Misplaced Funds, Evil Computing, Bad Oversight, and Worse

The liquidators who scooped up the remains of FTX have released their first official report on Sam Bankman-Fried’s imploding empire – and it somehow looks like things are worse than expected.

The 39-page dossier [PDF] details an organization with little or no oversight of its own operations, and leadership that stifled dissent, mixed customer and corporate funds, lied to investors and the public, and routinely misplaced millions of corporate dollars. internet users.

In an internal communication included in the report, Bankman-Fried shed light on the fact that FTX subsidiary Alameda Research was not auditable because even its executives could only “close” to the balance sheets of the organization.

“We sometimes find $50 million worth of assets lying around that we have lost track of; such is life,” SBF wrote.

FTX lacked any real form of governance management or oversight, according to the report, stating that SBF, former FTX engineering head Nishad Singh and FTX co-founder and CTO Gary Wang were the only ones with governance capabilities.

“Board oversight…was effectively non-existent,” the report said, adding that FTX had no internal audit functions or employees with experience in finance, accounting, human resources, or management. cybersecurity in place to act as a check on SBF-Singh. -Wang leadership triad.

To make matters worse, the report claims that when high-ranking company officials tried to impose oversight structures or delegation of authority rules, some were pushed back and others were fired. Things were so bad that “at the time of the bankruptcy filing, FTX Group did not even have up-to-date and complete lists of its employees,” the report concludes.

FTX also lacked any form of internal policies, necessitating a scramble to “build pretend policies that could be shown to auditors” in late 2020. The FTX Group also lacked enterprise resource planning software, instead relying on QuickBooks and “a hodgepodge of Google Docs, Slack communications, shared drives, Excel spreadsheets and other non-professional solutions to manage their assets and liabilities.”

You have stored so much crypto in What?!

The report states that FTX Debtors identified a number of “significant deficiencies in the FTX Group’s controls over digital asset management, information security and cybersecurity” which ultimately led it to expose the clients’ crypto funds at “serious risk of loss, misuse and compromise”. “, much like the November 2022 security breach which, or so it is claimed, saw someone skimming hundreds of millions of crypto from company accounts.

Some of the significant shortcomings included the storage of “virtually all funds” in hot wallets, these being cryptocurrency wallets effectively connected to the Internet and not isolated from potential theft. Ideally, you want to keep a large portion of your assets in cold offline wallets.

Meanwhile, private keys to FTX Group crypto assets were stored in a mix of “over a thousand [AWS] servers and associated system architecture.”

All of his aggravating management failures, debtors said, put clients’ assets and funds at risk “from the start”. The report states that FTX’s liquidators have recovered and secured around $1.4 billion in crypto-assets and have identified an additional $1.7 billion that they are still working to recover.

The review of FTX’s finances is ongoing, the former cryptocurrency exchange said, and additional reports are expected as the Chapter 11 filing process continues. There is, as you might expect, a long queue of people who want their money back from the imploding company. An omnibus hearing of those proceedings is scheduled for Wednesday. ®

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