A face of the regime of Sam Bankman-Fried, the founder of FTX, was revealed Nov. 22 during the company’s first hearing in Delaware bankruptcy court.
The 30-year-old former trader was practically considered an ’emperor’ among his employees: this is the image used by an FTX lawyer to describe what happened after Bankman-Fried filed for bankruptcy in the chapter 11 of his crypto empire consisting of FTX and Alameda Research.
Everyone realized for the “first time that the Emperor had no clothes,” James Bromley, co-manager of law firm Sullivan & Cromwell, told Judge John Dorsey.
Bromley also said FTX’s fall was “probably” one of the “sharpest and most difficult corporate meltdowns in American corporate history.”
The company ran out of cash when its customers rushed to withdraw their money by selling the cryptocurrencies they had previously purchased on the platform. FTX was using the client’s cryptocurrencies as collateral to borrow money which it then transferred to Alameda Research, a trading platform with which it shares several ties. Alameda used this money to invest in crypto businesses and also for trading operations.
You can read the FTX collapse timeline here.
A $1 billion personal loan
John Ray, FTX’s new CEO in charge of the restructuring, had already sharply criticized Bankman-Fried and his two associates — Zixiao “Gary” Wang and Nishad Singh — on November 17, explaining that they had failed at all levels.
Bankman-Fried received a $1 billion personal loan from Alameda, according to Ray. The company also provided a personal loan of $543 million to Singh and $55 million to Ryan Salame, co-CEO of FTX Digital Markets, one of FTX’s subsidiaries.
“In the Bahamas, I understand FTX Group corporate funds have been used to purchase homes and other personal items for employees and advisors,” Ray said. “I understand that there does not appear to be documentation for some of these transactions as loans, and that some real estate has been registered in the personal names of these employees and advisors in the Bahamian records.”
Bankman-Fried lives in the Bahamas.
Ray further shared that to get reimbursed for business expenses, employees only need to submit the request via chat and a supervisor will immediately approve with a personalized emoji.
“The accounts receivable lacked the type of disbursement controls that I believe are appropriate for a commercial enterprise,” Ray wrote. “For example, FTX Group employees submitted payment requests via an online ‘chat’ platform where a disparate group of supervisors approved disbursements by responding with personalized emojis.”
The conclusion of this restructuring of veterans was clear:
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as has occurred here,” Ray wrote in a 30-page filing. in the United States Bankruptcy Court for the District of Delaware.
“From the compromised integrity of systems and faulty regulatory oversight overseas, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented. “