FTX Trading CEO gives first report on control failures at exchanges

By Sarah Lizee

Olympia, Wash., April 10 – FTX Trading Ltd. chief executive officer John J. Ray III filed a first interim report on control failures at the FTX exchanges with the U.S. Bankruptcy Court for the District of Delaware.

As background, Ray replaced Sam Bankman-Fried as CEO when FTX collapsed in November. Bankman-Fried was charged with perpetrating a multibillion-dollar fraud through the FTX group. At least three senior insiders have pleaded guilty in connection with the scheme.

The first interim report provides a high-level overview of some of the FTX group’s control failures in the areas of management and governance, finance and accounting, and digital asset management, information security and cybersecurity.

“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,” Ray said in the 39-page 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.

“In this regard, 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.”

Ray said the group’s profound control failures placed its crypto assets and funds at risk from the outset and also complicated the debtors’ recovery efforts, although the debtors have made progress in that regard.

To date, the debtors have recovered and secured in cold storage over $1.4 billion in digital assets, and have identified an additional $1.7 billion in digital assets that they are in the process of recovering.

The debtors plan to issue supplemental reports that describe the cause and effect of the prepetition events that led up to the Chapter 11 cases.

FTX has headquarters in the Bahamas. The company filed Chapter 11 bankruptcy on Nov. 11 under case number 22-11068.

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