FTX Debtors Expose Critical Control Failures At FTX Group
FTX Trading Ltd. (d.b.a. FTX.com) and its affiliated debtors have released their first report following their ongoing review of the company’s control failures under the previous management team. The report, based on the review of terabytes of electronic data and communications, more than one million documents, and interviews with 19 former employees, discusses the control failures in critical areas such as management and governance, finance and accounting, digital asset management, information security, and cybersecurity.
July 31, 2019 Singh changed the code base to allow Alameda to withdraw unlimited amounts of crypto assets from FTX; and a week later modified it to exempt Alameda from automatic liquidation; the FTX group kept almost all crypto assets in hot wallets (SBF lied about using cold…
— Wu Blockchain (@WuBlockchain) April 9, 2023
Group’s Management Missteps
The Debtors undertook this work with a team of experts in legal, restructuring, forensic accounting, cybersecurity, computer engineering, cryptography, blockchain, and other areas. The report and related information can be found on the docket of the Chapter 11 cases and posted on the quick links section of the FTX Debtors Kroll site.
John J. Ray III, Chief Executive Officer and Chief Restructuring Officer of the FTX Debtors, emphasized the company’s commitment to transparency, stating that the report’s release was part of this effort. He added that FTX Group’s previous management team failed to implement appropriate controls critical to safeguarding cash and crypto assets. FTX Group was tightly controlled by a small group of individuals who falsely claimed to manage FTX Group responsibly but showed little interest in instituting oversight or implementing an appropriate control framework.
Reports on Pre-Petition Events
The report is expected to be the first in a series of reports detailing pre-petition events and issues that preceded the Chapter 11 cases. The Debtors’ review is ongoing, and they are working hard to identify and recover as much value as possible for creditors.
The release of the report is a significant step towards uncovering the cause of FTX’s fall and addressing the issues that led to the company’s Chapter 11 filing. The report’s findings highlight the importance of proper management and governance, finance and accounting, digital asset management, information security, and cybersecurity, especially in the volatile crypto industry. With the continuation of the Debtors’ review and the release of future reports, the FTX Debtors hope to provide a transparent account of events and improve the control framework for the benefit of all stakeholders involved.
