The ongoing bankruptcy case of FTX Group has provided a glimpse into the internal operations of one of the biggest cryptocurrency exchanges.
According to recent court documents filed by FTX CEO John Ray III, the exchange’s financial controls were a hodgepodge of apps and shared documents run by three inexperienced co-founders.
FTX’s chaotic and neglected bookkeeping
The court filings revealed that FTX Group’s financial controls were a mess, and the exchange had neglected its bookkeeping for some time.
The company relied on a mix of Google documents, Slack communications, shared drives, and Excel spreadsheets to manage its assets and liabilities.
In addition, FTX used accounting software designed for small and mid-sized businesses, not a firm that operates across multiple continents and platforms like it.
The filing also highlighted that the exchange had left around 80,000 transactions as unprocessed accounting entries in “catch-all QuickBooks accounts titled ‘Ask My Accountant.’” This lack of proper bookkeeping could indicate a severe lack of financial controls and regulatory compliance.
Inexperienced co-founders with limited experience
According to the court documents, the FTX Group was controlled by three inexperienced co-founders who had “the final voice in all significant decisions” despite having limited experience.
The CEO noted that the company’s co-founders Sam Bankman-Fried and Gary Wang, along with former engineering director Nishad Sing, had no experience in risk management or running a business.
The lack of proper delegation of authority and formal management structure, as well as the absence of key hires, was a significant issue raised by FTX.US President Brett Harrison.
He was subsequently stripped of his bonus and instructed to apologize to Bankman-Fried by the firm’s internal counsel. Harrison refused to comply with the instructions and eventually resigned.
FTX Trading Ltd. released its first report on control failures by the FTX Group’s previous management team in critical areas, including management and governance, finance and accounting, digital asset management, information security, and cybersecurity.
The report is based on the Debtors’ review of terabytes of electronic data and communications, more than one million documents, and interviews conducted with 19 former FTX Group employees.
In the report, the FTX Debtors identified extensive deficiencies in the FTX Group’s controls, including a lack of appropriate financial and accounting controls, inadequate group management structure, and record-keeping processes.
The report also shed light on the tight control held by a small group of individuals who showed little interest in instituting oversight or implementing an appropriate control framework.
The bankruptcy case of FTX has shed light on the internal workings of one of the biggest cryptocurrency exchanges. The court filings reveal the extent of the company’s financial control failures, which have resulted in a chaotic mess of apps, shared documents, and inadequate accounting software.
The inexperienced co-founders were unable to manage the multi-billion dollar empire properly, leading to control failures in critical areas. The case highlights the importance of proper financial controls and regulatory compliance in the cryptocurrency industry, and the need for experienced professionals to lead these companies.
