Report: FTX Collapse Due To ‘Hubris, Incompetence, Greed’

Failed crypto exchange FTX collapsed due to “hubris, incompetence, and greed”, a new debtor’s report from the company’s restructuring agents claims.

The 39-page report, filed with the US Bankruptcy Court for the District of Delaware on Sunday, claims the company lacked fundamental financial and accounting controls.

A handful of key figures tightly controlled the firm, stifling dissent internally while joking about their tendency to lose track of millions of dollars in assets, the report says.

The report is the first to be released by now-defunct FTX since it went into bankruptcy in November, with the loss of billions of dollars in customer funds.

Sam Bankman-Fried. Image credit: FTX

Oversight

“FTX Group was tightly controlled by a small group of individuals who falsely claimed to manage FTX Group responsibly, but in fact showed little interest in instituting oversight or implementing an appropriate control framework,” said current FTX chief executive and chief restructuring officer John J. Ray III.

“We are releasing the first report in the spirit of transparency that we promised since the beginning of the Chapter 11 process,” he said.

The report is based on a review of terabytes of electronic data and communications, more than one million documents and interviews with 19 former FTX employees, among other information.

When the company filed for bankruptcy it didn’t even have a complete list of who its employees were, the report says.

‘Hubris’

It says former FTX US president Brett Harrison resigned last September partly because of a “protracted disagreement” with chief executive Sam Bankman-Fried and his inner circle after Harrison made a written complaint about the way the company was being run.

“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,” the report said.

Decision-making was largely limited to Bankman-Fried, co-founder Gary Wang and former engineering chief Nishad Singh, the report found.

Wang and Singh, along with former chief executive of FTX sister company Alameda Research, have pleaded guilty to criminal charges in connection with the bankruptcy, while Bankman-Fried has denied wrongdoing.

Security controls

The company allegedly failed to put into place “basic, widely accepted” security controls to guard its crypto assets, such as the use of “cold” wallets rather than those directly linked to the internet, or the use of multi-factor authentication.

“The deficiency is ironic given that the FTX Group recommended that customers use MFA on their own accounts, and Bankman-Fried, via Twitter, publicly stressed the importance of 2FA (two-factor authentication)”, the report said.

The FTX debtors said they have “recovered and secured in cold storage over $1.4 billion (£1.13bn) in digital assets, and have identified an additional $1.7bn in digital assets that they are in the process of recovering”.

Matthew Broersma

Matt Broersma is a long standing tech freelance, who has worked for Ziff-Davis, ZDnet and other leading publications

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