The new management team at FTX released an initial report on what led to the demise of the bankrupt cryptocurrency exchange, painting a damning picture of its operations under ousted founder and CEO Sam Bankman-Fried's leadership.
The FTX debtors, led by new chief executive and restructuring officer John J. Ray III, wrote in the high-level overview that "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."
"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," the report reads.
"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," it added.
The report says under the direction of former leadership, FTX and its affiliated entities lacked the appropriate management, governance and organizational structure necessary for its size, as well as the financial and accounting controls needed for a multibillionaire-dollar firm.
It went on to cite Bankman-Fried's own internal communications to reflect the poor recordkeeping at Alameda Research, the affiliated hedge fund he co-founded, wherein he appeared to acknowledge the organization's loose financials and dismiss the issue.
"Alameda is unauditable," Bankman-Fried wrote to colleagues. "I don't mean this in the sense of ‘a major accounting firm will have reservations about auditing it'; I mean this in the sense of ‘we are only able to ballpark what its balances are, let alone something like a comprehensive transaction history.’ We sometimes find $50m of assets lying around that we lost track of; such is life."
Several former FTX and Alameda executives are currently facing federal charges related to the companies' failures, which resulted in tens of billions of dollars of losses to customers.
Bankman-Fried's fellow FTX co-founders Gary Wang and Nishad Singh, as well as ex-Alameda CEO Caroline Ellison have all admitted to wrongdoing at the failed entities and pleaded guilty to multiple counts related to their alleged roles involving fraud at the firms. All three former executives are reportedly cooperating with prosecutors.
Bankman-Fried has pleaded not guilty to all 13 federal counts against him and remains on house arrest at his parents' California home on a $250 million bond until his trial, which is slated for October.
The FTX debtors said further reports are forthcoming as they continue their probe.