The paper work filed by FTX exchange in the US bankruptcy court has shed light on some grave inconsistencies in the business practices at the crypto exchange.
Unchecked loans to related parties, lack of system to approve expenses, inappropriate allocation of company money, etc. are just some of the irregularities. John J Ray, the new CEO of the company, said in the US bankruptcy court, “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”
Here is a list of some of the glaring irregularities in the day-to-day functioning of FTX:
Unchecked loans to related parties
The bankruptcy filings note that the company had given loan to its related parties like Sam Bankman Fried (founder), Nishad Singh (Director), Alameda Research and others.
“Related Party Loans Receivable of $4.1 billion at Alameda Research (consolidated) consisted primarily of a loan by Euclid Way Ltd. to Paper Bird Inc. (a Debtor) of $2.3 billion and three loans by Alameda Research Ltd.: one to Mr. Bankman-Fried, of $1 billion; one to Mr. Singh, of $543 million; and one to Ryan Salame, of $55 million,” the bankruptcy filings noted.
Expenses approved on chat via emoji
The bankruptcy papers also highlight that there was no set system to clear expenses of employees and they were approved via online chat platforms via emoji.
The papers stressed: “The Debtors did not have the type of disbursement controls that I believe are appropriate for a business enterprise. For example, employees of the FTX Group submitted payment requests through an on-line ‘chat’ platform where a disparate group of supervisors approved disbursements by responding with personalized emojis.”
Lack of cash management system
The company, apparently, did not maintain centralised control of its cash flows. Management had no idea how much cash was on hand at any given time, or even where all their cash was.
“The FTX Group did not maintain centralized control of its cash. Cash management procedural failures included the absence of an accurate list of bank accounts and account signatories, as well as insufficient attention to the creditworthiness of banking partners around the world. Under my direction, the Debtors are establishing a centralized cash management system with proper controls and reporting mechanisms," the filings noted.
Decision making on chat, texts deleted later
The filings note that most decisions at FTX exchange were made over online chats. Apparently Fried encouraged use of platforms where the messages would automatically be deleted after a certain time.
“One of the most pervasive failures of the FTX.com business in particular is the absence of lasting records of decision-making. Mr. Bankman-Fried often communicated by using applications that were set to auto-delete after a short period of time, and encouraged employees to do the same," as per the filings.
Use of company funds to buy personal real estate
Corporate funds were used to purchase personal use real estate, the court filings highlighted. Employees and executives put their names on homes purchased with company funds.
The documents submitted in court read, “In the Bahamas, I understand that corporate funds of the FTX Group were used to purchase homes and other personal items for employees and advisors. I understand that there does not appear to be documentation for certain of these transactions as loans, and that certain real estate was recorded in the personal name of these employees and advisors on the records of the Bahamas.”
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