Report Details ‘Unauditable’ Chaos At FTX

Image credit: FTX Arena

Debtor’s report from failed FTX details lack of internal controls at company as top executives allegedly quashed complaints

The president of FTX’s US subsidiary, Brett Harrison, resigned from the company months before its   collapse last year due in part to Harrison’s concerns over the way the company was being managed, according to a report by the FTX restructuring team.

The resignation was partially due to a “protracted disagreement” between Harrison and chief executive Sam Bankman-Fried along with members of his inner circle over the lack of a “formal management structure”, the report said.

The debtor’s report, filed with Delaware bankruptcy court on Sunday, is the first detailed account by the restructuring team since it took over FTX after its collapse last November.

The report said Harrison had serious concerns about the way FTX US was being run, including “the lack of appropriate delegation of authority, formal management structure and key hires”.

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Management dispute

After Harrison took his concerns to Bankman-Fried ad former director of engineering Nishad Singh his bonus was “drastically reduced” and the company’s legal team instructed him to apologise to Bankman-Fried, which he refused to do, the report said.

Harrison previously stated via Twitter that he had been threatened following an April 2022 written complaint, being told he would be fired an that “Sam would destroy my professional reputation” if he did not retract the complaint and apologise.

The report said a member of the crypto exchange’s legal department was “summarily terminated after expressing concerns about Alameda’s lack of corporate controls, capable leadership and risk management”. Alameda Research was FTX’s sister trading firm.

The report said FTX was largely run by Bankman-Fried, Singh and co-founder Gary Wang, who cared little for internal controls.

‘Such is life’

The executives lost track of accounts and didn’t get around to cashing cheques, which “collected like junk mail”, the report said.

Alameda wasn’t clear on what its own positions were, “let alone hedging or accounting for them”, the report said, alleging that a June 2022 portfolio summary was largely fabricated after employees were instructed by an unnamed senior executive to “come up with some numbers? Idk [I don’t know].”

The report said Bankman-Fried at one point told employees Alameda was “unauditable”, explaining:

“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.’ We sometimes find $50 million (£40m) of assets lying around that we lost track of; such is life.”

Criminal charges

Bankman-Fried and other senior executives face criminal fraud and other charges over the collapse.

Singh and Wang have pleaded guilty, while Bankman-Fried has denied wrongdoing and is set to go to trial in October.