FTX scandal revealed | 30 pages of legal documents, 40-year veteran lawyer John Ray on the Anchorage case: Unprecedented level of messiness

FTX's newly appointed CEO, renowned bankruptcy restructuring lawyer John J. Ray III, requested on 11/17 that a federal judge in New York transfer the bankruptcy case to be heard in a Delaware court. This move aims to consolidate all FTX cases in the U.S. under one court and he also asked the judge to prohibit anyone in the world, including government entities, from seizing or obtaining funds from the FTX group. In this Delaware document, John J. Ray III revealed more shocking details about FTX.

Lawyer with 40 Years of Experience in Enron Bankruptcy Case: Never Seen Such Poor Corporate Governance

John J. Ray III, the bankruptcy lawyer for the largest corporate scandal in the U.S., the Enron case, with over 40 years of legal and restructuring experience, stated in court documents filed by FTX, "In our professional careers, we have never seen such poor corporate governance. There is absolutely no reliable financial information to trust."

With problematic systems, erroneous foreign oversight, and control concentrated in the hands of a very small, inexperienced, and immature group of individuals, John J. Ray III expressed that this situation is unprecedented.

SBF Transfers Money to Bahamian Government After Applying for Bankruptcy Restructuring

FTX filed for bankruptcy restructuring in U.S. courts on 11/11, but later unauthorized transactions occurred, leading to speculation about whether it was a hack or internal misconduct. SBF later mentioned in an interview that it could have been a former employee.

However, investigations revealed that based on statements by SBF and CTO Gary Wang, the Bahamian regulatory authority instructed the two to transfer digital assets to the Bahamian government after FTX applied for bankruptcy restructuring, placing them in their FireBlocks custody account. It wasn't until 11/18 that the Bahamian regulators came forward to state that it was within their regulatory purview to do so, as they were unaware at the time that FTX had entered into U.S. bankruptcy restructuring proceedings.

Note: The address marked as FTX Hackers' Address holds over $300 million.

Alameda Owes $4.1 Billion, SBF Borrows $1 Billion for Himself

From Alameda's financial records up to 9/30, it can be seen that they lent out $4.1 billion, with three senior executives within FTX borrowing, and SBF borrowing $1 billion.

Informal Accounting: Invoices Approved with Emojis via Slack

John J. Ray III pointed out that FTX lacks proper corporate expenditure controls, where employees can submit payment requests through an online chat platform and supervisors can approve these expenses with emojis. He even discovered that some funds were used to purchase homes and personal items for employees and consultants, without any debt records.

All Decision Records Automatically Deleted

John J. Ray III mentioned that there are no records left behind for internal decisions at FTX. SBF typically communicates using messaging software, which is set to automatically delete after a short period, encouraging employees to do the same.

User Assets Not Included in FTX's Balance Sheet

John J. Ray III noted that in the asset-liability statement he refers to as Dotcom Silo on ftx.com, there is no long-term debt. Typically, customer deposits should be a significant liability for ftx.com, as FTX holds your assets, but under SBF's leadership, user assets are not considered in the asset-liability equation.

Unclear Cash Amounts, Possibly $564 Million Still Missing

Due to improper cash management, creditors are unaware of the exact cash holdings of the FTX Group until the bankruptcy restructuring. Currently, Alvarez & Marsal accounting firm is auditing, and there may still be $564 million unaccounted for:

Auditing Firm Partners in the "Metaverse"

John J. Ray III mentioned that the debtors lack an accounting department and only collaborate with outsourced accounting firms. FTX US partners with the renowned company Armanino LLP; whereas ftx.com, also known as FTX International, collaborates with a company called Prager Metis, which John J. Ray III is unfamiliar with but noted their promotion as the first company to establish an accounting headquarters in the Decentraland metaverse, raising concerns about the financial information provided by ftx.com.

Alameda Somehow Exempt from Liquidation at FTX

John J. Ray III also revealed that Alameda is somewhat exempt from automatic liquidation agreements at FTX.

No Proper Security Controls and Records for Assets

John J. Ray III highlighted that the FTX Group lacks proper data records or security controls for digital assets. SBF and CTO Gary Wang manage the digital assets within the FTX Group, excluding subsidiaries like LegerX regulated by the CFTC, which are not part of the bankruptcy filing.

Outrageous Data Tampering to Conceal Misuse Records

John J. Ray III stated that FTX uses insecure group email accounts as root users, granting access to confidential private keys and critical sensitive data of global FTX Group companies. Moreover, they fail to confirm positions on the chain daily and use software to conceal the misuse of customer funds.

Good News: Cold Wallets Still Hold $740 Million

John J. Ray III mentioned that creditors are safeguarding some digital assets of the FTX Group, with valuable cryptocurrencies worth $740 million in certain cold wallets, which are expected to be distributed to FTX US, ftx.com, and Alameda.

Bad News: Issuance of Additional FTT Tokens Post-Bankruptcy

However, debtors are still unsure how to allocate this $740 million due to $3.72 billion in unauthorized transfers and the issuance of an additional $3 billion in FTT tokens post-bankruptcy filing, along with some unconfirmed cold wallet assets.

New CEO Emphasizes: SBF's Statements Do Not Represent the Company

FTX's newly appointed CEO, John J. Ray III, stated on 11/17, "SBF has stepped down from his role as FTX CEO and other subsidiary positions. His statements do not represent FTX's stance."

(1/3) Statement from John Ray, Chief Restructuring Officer and CEO of @FTX_Official, regarding Mr. Bankman-Fried’s recent public statements:

— FTX (@FTX_Official) November 16, 2022