FTX’s financial controls were a “patchwork” of applications, court filings say

FTX was run by three inexperienced “not long out of college” people, who relied on a “hodgepodge” of online documents and communications shared across a series of different applications to run the multi-billion dollar empire according to FTX CEO John Ray III.

On April 9, John Ray III filed a detailed report of FTX control failures in the Delaware Bankruptcy Court.

Ray stated that his restructuring team had “identified broad deficiencies in the FTX Group’s controls” from a lack of appropriate financial and accounting controls to an inadequate group management structure and record-keeping process.

FTX appears to have “relied on a mixture of Google Docs, Slack communications, shared drives and Excel spreadsheets” to manage its assets and liabilities.

FTX used QuickBooks accounting software, which Ray said was designed for “small and medium-sized businesses” and not for a company that operates across “multiple continents and platforms” like FTX.

Related: Names of non-US FTX users requested by mainstream media

Bookkeeping was reported neglected at FTX as about 80,000 transactions were left as unprocessed accounting entries in QuickBooks comprehensive accounts titled Ask an Accountant.

Ray stressed that co-founders Sam Bankman-Fried and Gary Wang and former engineering director Nishad Singh had “the final voice on all important decisions,” despite very limited experience.

“These three individuals, longtime college dropouts with no experience in risk management or running a business, controlled nearly every significant aspect of the FTX Group.”

Wang and Singh’s significant control of FTX was noted by an unnamed FTX executive who stated that “if Nishad [Singh] Hit the bus, the whole company will be over. Same problem with Gary [Wang]. “

It was noted that the company could not provide a complete list of its employees at the time of filing for bankruptcy in November 2022.

FTX failed to present its financial statements on time at the end of the financial reporting periods and did not perform background checks to identify and correct material misstatements.

FTX.US President Brett Harrison raised concerns with Bankman-Fried and Singh regarding the “lack of proper delegation of authority, formal management structure, and key appointments at FTX.US.”

In response, Harrison’s bonus was cut substantially and he was directed to apologize to Bankman-Fried by the company’s in-house counsel, which he refused. It was reported that Harrison quit after the dispute.

Ray stated in a court filing dated Feb. 6 that when he took control of FTX in November 2022 “there was not a single list of anything” related to bank accounts, income, insurance or employees, which caused a “huge scramble for information.”

He rejected a proposal to hire an independent examiner for the bankruptcy case out of fear that “mistakes” could “ruin hundreds of millions of dollars.”

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