The FTX bankruptcy filings were like turning over a rotting log

Ray III finalized court filings on behalf of FTX’s bankruptcy proceedings. After the first few paragraphs delving into the experience and the behind the bankruptcy, the filing takes a sharp turn. I’ll let the filing speak for itself [2]:

On the state of the company and leaders of FTX

Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.

On the Human Resources procedures at FTX

The FTX Group… have been unable to prepare a complete list of who worked for the FTX Group ... Repeated attempts to locate certain presumed employees to confirm their status have been unsuccessful to date.

On loans given to SBF and other FTX leaders

Related Party Loans Receivable of $4.1 billion at Alameda Research (consolidated) consistent primarily of a loan … to Paper Bird Inc. of $2.3 billion and… one to Mr. Bankman Fried, of $1 billion; one to Mr. Singh, of $543 million; and one to Ryan Salame, of $55 million

On security practices, especially Alameda’s exemption from FTX’s liquidation preference

Unacceptable management practices included the use of an unsecured group email account as the root user to access confidential private keys and critically sensitive data …, the secret exemption of Alameda from certain aspects of FTX.com’s auto-liquidation protocol, and the absence of independent governance as between Alameda (owned 90% by Mr. Bankman-Fried and 10% by Mr. Wang) and the Dotcom Silo (in which third parties had invested).

On the misuse of corporate funds

…corporate funds of the FTX Group were used to purchase homes and other personal items for employees and advisors… certain real estate was recorded in the personal name of these employees and advisors on the records of the Bahamas.

On FTX communication

Mr. Bankman-Fried often communicated by using applications that were set to auto-delete after a short period of time, and encouraged employees to do the same.

On SBF’s recent behavior

Mr. Bankman-Fried, currently in the Bahamas, continues to make erratic and misleading public statements. Mr. Bankman-Fried, whose connections and financial holdings in the Bahamas remain unclear to me, recently stated to a reporter on Twitter: “F*** regulators they make everything worse” and suggested the next step for him was to “win a jurisdictional battle vs. Delaware”.

In plain English: this was a shitshow. The core FTX and Alameda team had -

1. No idea who their employees were
2. Loaned themselves $4.1 billion dollars from Alameda’s balance sheet
3. Implemented a secret exemption for Alameda on FTX’s liquidation engine
4. Purchased homes with corporate funds

All of these things are very, very bad.

Each of these points would be enough to raise significant eyebrows.
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