The monumental crash of FTX is more extensive than most people imagine. Many huge crypto projects, in terms of their market cap, are collapsing one by one, wiping out billions from the market.
Billions loaned, billions lost
— Investro.com (@investrocom) November 18, 2022
According to a court document filed on November 17th by the new FTX CEO John Ray III, Sam Bankman-Fried received $1 billion in personal loans from Alameda Research while serving as the CEO of the bankrupt cryptocurrency exchange. The restructuring divided all of the bankruptcy-affected businesses into five pieces.
Ray has been in the bankruptcy restructuring industry for 40 years and oversaw Enron’s bankruptcy in 2001. Ray documents multiple instances of fraud, negligence, and lousy record-keeping at FTX in the 30-page report. The latest findings about FTX give creeps as the damage is beyond person’s imagination.
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Several business executives received personal loans from The Alameda Silo totalling more than $1.6 billion. Nishad Singh, the director of engineering at FTX, received a $543 million loan from Alameda, according to the filing. The company also loaned $55 million to Ryan Salame, the co-CEO of FTX.
— Investro.com (@investrocom) November 15, 2022
“”FTX compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced individuals. This is a complete failure of corporate controls and such a complete absence of trustworthy financial information,”” said Ray III.
The current FTX bankruptcy advisors, who also supervised the bankruptcy of Enron, have only discovered $560 million in cash and $740 million in crypto in FTX wallets. However, the $8 billion liquidity gap is far from the assets found. Charles Hoskinson, the founder of Cardano, tweeted that the FTX case appears to be significantly worse than the Enron case.
From the FTX bankruptcy filing. Literally Enron was a better situation pic.twitter.com/55cih4WksT
— Charles Hoskinson (@IOHK_Charles) November 17, 2022
Ray claimed he had never seen such a complete breakdown of corporate controls and a complete lack of financial data that could be relied upon. He added that SBF did not have a centralized system for managing the company’s finances.
Awful practices of FTX
SBF allegedly did not have a complete list of bank accounts, nor did he give much thought to the creditworthiness of his banking partners. Therefore, the audited financial statements of FTX are unreliable in Ray’s opinion, while the advisors are recreating the balance sheets of the FTX.
Additionally, FTX neglected to maintain accurate account records and security protocols for its holdings of digital assets. This ultimately resulted in the exchange’s customer deposits being hacked for $372 million right after it filed for bankruptcy.
According to a Financial Times article from November 12th, the value of the company’s crypto assets was estimated to be over $5.5 billion based on a leaked FTX balance sheet. However, Ray estimated something totally unexpected. He said that the fair value of the company’s cryptocurrency assets was only $659,000.
Other poor management practices included accessing sensitive information and private keys using an unprotected group email account. Additionally, Ray revealed that FTX lacked a comprehensive list of all the personnel employed by FTX. He also disclosed that most personal communications were made using applications that were set to automatically delete messages (e.g., Signal), a practice that SBF reportedly encouraged. This was one of the reasons for the company’s poor record-keeping, he said.
Crypto lender Genesis is one of a seemingly lengthy list of cryptocurrency firms that have suffered as a result of their investment relationship with FTX. As a result, Genesis halts client withdrawals and seeks a $1 billion emergency loan due to a liquidity crunch.
Another domino has fallen – the #FTX saga has a new victim 🙏❌
— Investro.com (@investrocom) November 11, 2022
Moreover, according to filings, FTX lent $250 million in $FTT to BlockFi, a cryptocurrency lender that is near its bankruptcy. FTX also misused corporate funds to buy homes in the Bahamas or other personal items in the employees’ names.
The fall of FTX is undoubtedly one of the worst events in the history of cryptocurrencies. Hopefully, people will remember how and why it all happened and take their lesson.
It is necessary to eliminate the fraudulent and poisonous companies that rotten the entire crypto industry so it can bottom out and grow again. So while this event caused a huge wave of pessimism, it shouldn’t necessarily mean the end of crypto but rather a beginning of a new chapter.