FTX CEO Reveals Inadequacies in its Internal Operations Pre-Bankruptcy

John Ray III, the experienced attorney, and the new chief restructuring officer of the bankrupt exchange FTX have shared some revelations regarding the operations of the exchange prior to its bankruptcy.

According to a filed report by the new FTX leadership in the Delaware Bankruptcy Court, Ray and his team identified significant shortcomings in FTX’s controls, including inadequate financial and accounting controls, group management structure, and record-keeping processes. 

FTX under Sam Bankman-Fried’s leadership, employed a combination of Slack, Google Docs, shared drives, and Excel spreadsheets to manage assets and liabilities, using QuickBooks, which is designed for small and medium-sized businesses and not suitable for a global enterprise like FTX.

FTX Was Run by Inexperienced Individuals

The filing also revealed that the management and the FTX group’s governance were limited to the embattled CEO, Nishad Singh, and Gary Wang, of which SBF happens to be a significant voice heard in decision-making. Unfortunately, this three personnel have no experience in managing a firm and bearing the risk. Ray described the trio as inexperienced and fresh out of college.

Recall that John Ray revealed that when SBF was in charge of FTX, the company stored private keys to cryptocurrency wallets without using encryption. This brought about losing hundreds of millions of dollars to theft and other forms of criminal behavior, like illegal transfers, although Ray was able to secure over $1 billion in digital assets. 

Despite the weight the exchange pulled with regard to assets and transaction level, it still lacked basic fundamental financial and accounting controls. Notably, the exchange could not use an advanced off-the-shelf Enterprise Resource Planning (ERP) system to minimize the risk of data integrity errors. 

Meanwhile, early this year, the new CEO of the insolvent cryptocurrency exchange discussed the possibility of restarting the firm.

He said he will work on investigating if restarting the firm would recover more value for the company’s creditors or selling it off so the creditors could get enough compensation. Ray is doing everything possible, though not easy, to revive the exchange. The filing is his first detailed report of the exchange’s operations since taking charge.