Lawyers are so annoying that they are not appreciated as writers or as talented as they could be. In the spirit of literary appreciation, let us all read the absolute piece of paper filed by John J. Ray III in the FTX bankruptcy case.
Ray, who is this person? He wrote in the filing that he is the guy running FTX.
I have over 40 years of legal and restructuring experience. I have been the Chief Restructuring Officer or Chief Executive Officer in several of the largest corporate failures in history. I have supervised situations involving allegations of criminal activity and malfeasance (Enron). I have supervised situations involving novel financial structures (Enron and Residential Capital) and cross-border asset recovery and maximization (Nortel and Overseas Shipholding). Nearly every situation in which I have been involved has been characterized by defects of some sort in internal controls, regulatory compliance, human resources and systems integrity.
It was quite the wind up. This is how he pays it off.
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.
It is worse than Enron according to the man. There was a company called Enron.
He doesn't know what he thinks of Alameda research. It isn't promising.
Alameda Research LLC prepared consolidated financial statements on a quarterly basis. To my knowledge, none of these financial statements have been audited. The September 30, 2022 balance sheet for the Alameda Silo shows $13.46 billion in total assets as of its date. However, because this balance sheet was unaudited and produced while the Debtors were controlled by Mr. Bankman-Fried, I do not have confidence in it and the information herein may not be correct as of the date stated.
It's important to emphasize mine here and throughout. The ventures arm, what about it? Ray isn't confident in the balance sheets. He can't find financial statements for one of the entities that made venture investments
FTX dot com is large. It's hard to say. Ray is more forthcoming about his confidence in Bankman- Fried.
Mr. Bankman-Fried claimed that, by the end of 2021, around $15 billion of assets were on the platform, which according to him handled approximately 10% of global volume for crypto trading at the time. Mr. Bankman-Fried also claimed that FTX.com, as of July 2022, had “millions” of registered users. These figures have not been verified by my team.
One very funny outcome would be to discover that Bankman- Fried had been lying about how many people used FTX. I would be happy to know that retail investors are not ripped off.
Those of you who don't like meetings will relate to this.
Many of the companies in the FTX Group, especially those organized in Antigua and the Bahamas, did not have appropriate corporate governance. I understand that many entities, for example, never had board meetings.
There is a new board that will probably meet. Many of them are experts on companies that are in trouble. What did FTX do with its money?
The FTX Group did not maintain centralized control of its cash. Cash management procedural failures included the absence of an accurate list of bank accounts and account signatories, as well as insufficient attention to the creditworthiness of banking partners around the world.
That's right, what! That's right, they what! I'm okay. They don't have a good list of their bank accounts. How is that possible? Who was running this place? They were doing something. It's my god. The FTX Group did not know the exact amount of cash they held as of the petition date.
We are at the point where we need to discuss FTX's auditors. The first-ever CPA firm to officially open its Metaverse headquarters in the metaverse platform Decentraland was one of the auditors. You can't make this stuff up. Ray has a lot of concerns about the audited financial statements.
We don't know about the balance statements. We might be able to figure out who worked there.
The FTX Group’s approach to human resources combined employees of various entities and outside contractors, with unclear records and lines of responsibility. At this time, the Debtors have been unable to prepare a complete list of who worked for the FTX Group as of the Petition Date, or the terms of their employment. Repeated attempts to locate certain presumed employees to confirm their status have been unsuccessful to date.
Please let us know if you need help.
I don't know what to say about this and the hits keep coming. Payments requests were submitted through an on-line platform where a disparate group of supervisors approved disbursements. It's a personalized emoji.
FTX kept its books on digital assets. It's a trick question. They didn't keep any books. I'm pretty sure the situation is worse than that.
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 for the FTX Group companies around the world, the absence of daily reconciliation of positions on the blockchain, the use of software to conceal the misuse of customer funds, 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).
I have been screaming at my computer a lot, but reading that paragraph made me cry. Ray has not found all of the digital assets. He asked forensic analysts to figure it out. Wow, dude.
FTX employees seemed to be unaware of all the chaos. Some of the people most hurt by these events are current and former employees and executives who have had their personal investments and reputations damaged. There's a big "woof."
Mr. Bankman- Fried encouraged employees to use applications that would auto-delete after a short period of time. I understand that the business was run by 12 year olds, but this is not a good sign. Things need to be written down.
My favorite part may be close to the end. John Ray hates Sam Bankman- Fried. He is tired. I don't know how to tell. That's right, well:
Finally, and critically, the Debtors have made clear to employees and the public that Mr. Bankman-Fried is not employed by the Debtors and does not speak for them. 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”.
I am not a lawyer, but this does say, "Bring it on, little bitch"
You can read the entire document for yourself.
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