The root causes of last year’s failure of cryptocurrency exchange FTX were “hubris, incompetence, and greed,” the company’s debtors said in their first report since the company previously run by Sam Bankman-Fried collapsed in November.
It’s a situation that should be familiar to John. J. Ray III, who took over as CEO of FTX and its affiliates—as a group, FTX Debtors—and led the Chapter 11 bankruptcy filing amid a crypto crisis that continues to hang over digital asset markets and companies. Ray is a veteran liquidator who helped oversee the liquidation of Enron.
Ray’s first interim report to the independent directors, focused on control failures at FTX, said that FTX was “tightly controlled by a small group of individuals who showed little interest in instituting an appropriate oversight or control framework.”
Despite trying to create a responsible public image, the report alleged that leaders stifled dissent, commingled and misused corporate and customer funds, lied to third parties, and joked internally about a tendency to lose track of millions of dollars.
“While the FTX Group’s failure is novel in the unprecedented scale of harm it caused in a nascent industry, many of its root causes are familiar: hubris, incompetence, and greed,” the report said.
There also was a pervasive lack of records and other evidence at FTX of where and how assets—both fiat and crypto—could be found, and extensive commingling of assets, the report said, noting the challenges its bankruptcy leadership has faced.
Once valued at $ 32 billion and backed by celebrities including Tom Brady and Kevin O’Leary, FTX collapsed on Nov. 11, about a week after concerns began swirling over its health. The collapse wiped away billions of dollars of customer assets and investment value.
Founder and CEO Bankman-Fried—once one of the most high-profile figures in digital assets and a fixture of crypto lobbying in Washington—has been charged with a spate of financial crimes, including fraud.
He has pleaded not guilty. Executives at FTX and affiliates, including Nishad Singh, Gary Wang, and Caroline Ellison, have pleaded guilty to charges pursuant to cooperation agreements with the Justice Department.