Sam Bankman-Fried threatened FTX employees who voiced concerns about its business practices. FTX, a crypto empire once worth $32 billion, had employees file business expenses via Slack. Insider compiled the six most shocking claims about the failed crypto exchange from its debtors report. Loading Something is loading.
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FTX’s debtors report was released on Sunday, the first detailed account of wrongdoings against the failed crypto exchange and its affiliated companies since CEO John J. Ray III took over last year.
Claims range from egregious accounting mistakes that cost the company a fortune, threats against employees who spoke up about alleged wrongdoings, and several others. The report, which is 45 pages long, compiled interviews of 19 former FTX employees and “received substantial information through counsel” for five others.
“At its peak, the FTX Group operated in 250 jurisdictions, controlled tens of billions of dollars of assets across its various companies, engaged in as many as 26 million transactions per day, and had millions of users,” the report reads. “Despite these asset levels and transaction volumes, the FTX Group lacked fundamental financial and accounting controls.”
FTX filed for Chapter 11 bankruptcy in November after losing at least $8 billion in client funds. Prosecutors have referred to the catastrophic turn of events as one of the “biggest financial frauds in American history.”
Insider compiled a list of the six most damning claims against FTX from the newly-released court document.
1) SBF threatened FTX execsMultiple FTX execs were threatened after voicing concerns over the company’s business practices.
Brett Harrison, the former president of FTX.US, reportedly resigned after a “protracted disagreement” with founder Sam Bankman-Fried and former FTX engineering director Nishad Singh “over the lack of appropriate delegation of authority, formal management structure, and key hires” at the US affiliate.
After Harrison addressed these issues, his bonus was “drastically reduced” and “senior internal counsel instructed him to apologize to Bankman-Fried for raising the concerns, which he refused to do.”
Harrison previously confirmed via Twitter that he resigned for similar reasons, adding that he was “threatened on [Bankman-Fried’s] behalf that I would be fired and that Sam would destroy my professional reputation,” he wrote.
“I was instructed to formally retract what I’d written and to deliver an apology to Sam that had been drafted for me.”
—Brett Harrison (@BrettHarrison88) January 14, 2023Just three months later, an attorney for FTX was terminated after expressing concerns over sister trading shop Alameda Research’s inadequate corporate controls and lack of risk-management practices.
2) FTX.US was in talks about an IPO, but efforts were shelvedManagement of FTX Group previously considered taking its US affiliate public on the Nasdaq in December 2020. FTX.US needed to be audited, however, a process that would include looking through company policies and various work flow procedures.
As a result, the report says: “Senior FTX Group personnel scrambled to cobble together purported policies that could be shown to auditors. In requesting the assistance of certain employees in quickly writing policies, FTX Group management informed them that because the auditors [would] spend time in understanding and reviewing [FTX] internal processes, internal controls would have to be documented. FTX Group management asked employees ‘well-versed with’ ‘parts of the [work]flow’ to provide first drafts of policies and procedures in a mere 24 hours.”
3) An Alameda exec instructed employees to fudge numbersAn unnamed upper-level Alameda insider instructed staff to “come up with some numbers? idk” in response to requests for marking the fund’s positions for certain tokens.
Although Alameda was once viewed as one of the best in the industry, behind the scenes the trading shop couldn’t keep track of its own investment strategies.
In fact, Bankman-Fried previously described Alameda as “hilariously beyond any threshold of any auditor being able to even get partially through an audit,” adding: “Alameda is unauditable. I don’t mean this in the sense of ‘a major accounting firm will have reservations about auditing it’; I mean this in the sense of ‘we are only able to ballpark what its balances are, let alone something like a comprehensive transaction history.'”
He added via internal messaging: “We sometimes find $50 [million] of assets lying around that we lost track of; such is life.”
4) Employee expenses were approved with emojisFTX Group also had employees file business expenses and invoices via Slack. These were then approved by emoji, according to the report.
5) FTX had 80,000 transactions labelled as ‘Ask My Accountant’ Transactions for FTX were often tracked through QuickBooks, accounting software that is commonly used for smaller and medium-sized companies. The firm used generic phrases like “investments in cryptocurrency,” per the report.
“Approximately 80,000 transactions were simply left as unprocessed accounting entries in catch-all QuickBooks accounts titled ‘Ask My Accountant,'” the debtors report reads.
6) There was too much power held among a small handful of execsMajor decisions surrounding FTX, according to the report, were in the hands of Bankman-Fried, Singh, and cofounder Gary Wang, leaving many employees in the dark over their individual responsibilities.
One former executive described Singh’s and Wang’s oversight on FTX Group as: “If Nishad [and Gary] got hit by a bus, the whole company would be done.”
“These individuals stifled dissent, commingled and misused corporate and customer funds, lied to third parties about their business, joked internally about their tendency to lose track of millions of dollars in assets, and thereby caused the FTX Group to collapse as swiftly as it had grown,” the report reads.
“In this regard, while the FTX Group’s failure is novel in the unprecedented scale of harm it caused in a nascent industry, many of its root causes are familiar: hubris, incompetence, and greed.”