The new CEO of FTX, John J. Ray III, has released his prepared remarks ahead of tomorrow’s Congressional hearing.
He largely reiterated his previous comments about a total lack of governance when Sam Bankman-Fried ran the company:
“…never in my career have I seen such an utter failure of corporate controls at every level of an organization, from the lack of financial statements to a complete failure of any internal controls or governance whatsoever.”
Additionally, he blamed the failure of the crypto exchange on the lack of experience among prior management:
“FTX Group’s collapse appears to stem from the absolute concentration of control in the hands of a very small group of grossly inexperienced and unsophisticated individuals who failed to implement virtually any of the systems or controls that are necessary for a company that is entrusted with other people’s money or assets.”
Finally, and most notably, Ray outlines some of the unacceptable management practices at the FTX Group identified so far include:
The use of computer infrastructure that gave individuals in senior management access to systems that stored customer assets, without security controls to prevent them from redirecting those assets;
The storing of certain private keys to access hundreds of millions of dollars in crypto assets without effective security controls or encryption;
The ability of Alameda, the crypto hedge fund within the FTX Group, to borrow funds held at FTX.com to be utilized for its own trading or investments without any effective limits;
The commingling of assets;
And it is that final one that is a major problem for Sam Bankman-Fried as he has claimed multiple times he was not aware of any commingling of funds and now it appears Ray has proof (or why would he say so under oath). That is a crime – pure and simple.