Lawyers point to mismanagement in FTX’s first bankruptcy hearing

Lawyers point to mismanagement in FTX’s first bankruptcy hearing

The first one bankruptcy hearing for Bahamas-based FTX was held on Tuesday, November 22 in the United States Bankruptcy Court in Wilmington, Delaware. The exchange’s new CEO and Director of Restructuring, John Ray III, was also present in the courtroom.

Attorneys for Sullivan Cromwell, the law firm representing FTX, presented a detailed account of the mismanagement that took place at the bankrupt exchange and its associated entities.

FTX: a different type of animal

Sullivan Cromwell’s Adam Landis began by describing the FTX case as a “kind of different animal”. From the outset, it became fairly clear that the attorneys representing the exchange had no intention of holding back while informing the judge of the mismanagement of the company under the previous leadership.

According to fellow lawyer James Bromley, FTX was under the control of a small group of inexperienced and unsophisticated individuals. “Some or all of them were also compromised individuals,” Bromley added. Lawyers argued that FTX was run as a “personal fiefdom” by Sam Bankman-Fried.

This was followed by details of the embezzlement that took place at FTX ahead of the crypto industry’s biggest Chapter 11. bankruptcy deposit. Lawyers said $300 million was spent to salvage homes and vacation properties for the company’s senior executives. Additionally, they revealed that the company had unreliable financial records and compromised systems that made it vulnerable to cyberattacks.

According to Adam Landis, the lack of leadership shown by Sam Bankman-Fried in the run-up to the stock market’s collapse resulted in “resignation across the ranks”.

A new CEO sets up a team of investigators

Regarding damage control measures, the attorneys informed the judge that FTX’s Director of Restructuring and current CEO, John Ray II, had assembled an investigative team to look into the matter and secure the assets that had been lost due to piracy.

The team is made up of industry veterans, including Steve Pecan, who was formerly director of enforcement for the Securities and Exchange Commission, and former CFTC enforcement officer Jamie McDonald.

FTX’s new management has also tapped on-chain intelligence firm Chainalysis to help with the investigation.

The judge decided to grant FTX’s motion to keep the creditors’ names sealed. However, the judge added that this was a temporary relief and would likely be lifted at a future hearing. The next hearing is scheduled for mid-December.

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