By Geoffrey Smith
Investing.com -- The mess at collapsed cryptocurrency exchange FTX is worse than the one at Enron, according to the man in charge of both companies' bankruptcy procedures.
"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," said FTX's new CEO John J. Ray - who also shepherded the Texan energy giant through bankruptcy 20 years ago - in his first filing to the Delaware court overseeing FTX's chapter 11 filing.
"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," he added.
Various reports have indicated that the gap between FTX's assets and liabilities could be over $8 billion. Ray said he has been unable to find out exactly how much cash the company has, but has so far identified only $564M in unrestricted liquidity.
Ray laid out the essential frivolity of FTX's corporate culture in painful detail, noting that one of the auditors - a firm named Prager Metis - referred to itself as the "first-ever CPA firm to officially open its Metaverse headquarters in the metaverse platform Decentraland."
More seriously, he highlighted that company funds had been used to buy houses in the Bahamas for employees and advisors. The approvals process for transactions appears to have been no more than a chat group, in which "a disparate group of supervisors approved disbursements by responding with personalized emojis," according to Ray.
Despite that, Ray said he thinks that many FTX employees, including some senior executives, weren't aware of the shortfalls or the misappropriation of customers' funds.
Elsewhere in the filing, Ray confirmed that specific software had been used to cover up that misappropriation - a line consistent with Reuters' report at the weekend that founder Sam Bankman-Fried had personally installed a "back door" mechanism to allow him to move assets without being detected.
Ray didn't blame Bankman-Fried specifically for that software but blasted him for what he called "erratic and misleading public statements" on social media in recent days, which have given the impression that he still speaks for the company. Ray's task in managing the fallout with U.S. authorities is unlikely to have been made simpler by Bankman-Fried's recent Twitter comment "F*** regulators they make everything worse” and his suggestion he is still trying to wrest jurisdiction of the bankruptcy case away from Delaware.
Crucially, Ray said he had not found any audited financial statements for the group of companies around Alameda Research, the hedge fund affiliate of FTX that appears to have played a central role in channeling customer funds out of FTX. Alameda was included with over 130 other FTX affiliates in the filing.