John Ray III, the CEO of FTX, filed a declaration with the United States Bankruptcy Court for Delaware on Thursday.
The state of the company and the behavior of the former executives was described by Ray as one of the worst examples of corporate controls he had ever seen. A person with 40 years of legal and restructuring experience said it was damning.
Some of the most significant revelations came from Ray.
There was a complete failure of corporate controls and a complete lack of trustworthy financial information here.
Sam Bankman-Fried, the former CEO of Alameda Research-FTX, was torched by Ray for the failure by leadership to address the huge hole in the balance sheet. It is possible that investors will lose as much as $8 billion. It will take Ray and his investigators some time to uncover the truth.
I don't think it's appropriate for stakeholders or the court to rely on the audited financial statements as a reliable indicator of the financial circumstances of these companies.
The new chief of FTX was concerned about the financial positions he was presenting to the court. The numbers presented in the implosion of FTX were not appropriate for stakeholders or the court to rely on.
It's important to have accurate financials in order to value and invest in a company. Bankman- Fried and his companies were valued at tens of billions of dollars by venture capital firms.
Books are opened and audited financials are shown to potential investors during a due diligence period. Fresh questions about the diligence done by some of the world's biggest venture firms were raised by Ray's assertion that the financial statements for many of FTX's subsidiaries are unreliable.
Corporate funds of the FTX Group were used to purchase homes and other personal items for employees and advisers in the Bahamas. I am aware that there is no documentation for some of these transactions as loans and that some real estate was recorded in the personal name of the employees and advisers.
Corporate funds were used to purchase homes for employees in their names, according to Ray. The loans were not recorded from FTX to the individuals. Individuals were given the deed to the properties in their own names.
Bankman- Fried's penthouse briefly hit the market after the bankruptcy. It is no longer on the public listing.
The Debtors did not have the type of disbursement controls that I believe are appropriate for a business enterprise.
Bankman-Fried's team used internal messaging to release corporate funds into the hands of employees around the world. Although the company is known to have used slack for internal communications, it isn't immediately clear what platform FTX used.
The use of a group email to access confidential private keys and critically sensitive data, the use of software to hide the misuse of customer funds, and the secret exemption of Alameda from certain aspects of FTX.com were all unacceptable management practices.
The secretive trading firm at the center of Bankman-Fried's empire executed trades on FTX. In light of Ray's declaration that Alameda was secretly exempt from certain aspects of FTX's auto-liquidation protocol, the two firms were closer than previously acknowledged.
It is unclear what aspects Ray meant. A margin call is when a levered position is closed out by an exchange due to a sudden change in the underlying asset's price.
CNBC requested comment from Bankman- Fried.
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