FTX, the bankrupt cryptocurrency exchange formerly led by Sam Bankman-Fried, collapsed as a result of mismanagement from senior executives, according to an interim report from attorneys charged with managing the bankruptcy.
Several companies controlled by Bankman-Fried imploded at the end of last year after customers and investors learned that FTX had improperly commingled funds with sister trading company Alameda Research. John Ray III, who was appointed as chief executive of FTX in order to recover lost funds and reimburse investors, told the United States Bankruptcy Court for the District of Delaware that “hubris, incompetence, and greed” from executives with minimal experience or qualified oversight caused the collapse.
“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 attorney wrote. “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.”
Lawyers have examined more than one million documents and continue to review financial records from the imploded company, which was headquartered in the Bahamas. Control failures at the firm “created an environment in which a handful of employees had, among them, virtually limitless power to direct transfers of fiat currency and crypto assets and to hire and fire employees” without any “effective oversight” to control the execution of their powers.
Ray, who previously managed the collapse of fraudulent energy company Enron, testified before members of the House Financial Services Committee last year that FTX marked the worst failure of corporate controls he had witnessed in his entire career. He contended that FTX executives, most of whom were in their mid-to-late twenties, had embarked on a “spending binge” and discharged more than $5 billion on imprudent business investments, including advertisements with celebrities such as quarterback Tom Brady and investor Kevin O’Leary.
Bankman-Fried pleaded not guilty to a number of charges such as conspiracy to commit wire fraud, conspiracy to commit securities fraud, and conspiracy to commit bank fraud. Officials in the Bahamas arrested the former multibillionaire and sent him to face charges in the Southern District of New York, which often oversees high-profile financial fraud cases.
Beyond using the customer funds to enrich himself, acquire luxury real estate in the Bahamas, and influence the political system through contributions to Democratic entities, Bankman-Fried donated millions to various media outlets through a nonprofit organization called Building a Stronger Future, which he ran with the help of his brother, Gabe Bankman-Fried, a former Democratic congressional staffer and the director of Guarding Against Pandemics.
Bankman-Fried is currently staying at his parents’ home in northern California. Mark Cohen, a lawyer for Bankman-Fried who previously defended Jeffrey Epstein confidant Ghislaine Maxwell, initially succeeded in requesting that the identities of two unknown individuals who secured his $250 million bond remain sealed. Two months ago, however, court documents showed that Larry Kramer, the dean emeritus of Stanford Law School and president of the William and Flora Hewlett Foundation, and Andreas Paepcke, a senior research scientist at Stanford University, were the two individuals who secured the bond.