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FTX’s bankruptcy process has begun, led by the company’s new CEO, John Ray. After Sam Bankman-Fried, the company’s founder and former CEO, left office and position, Ray took over the reins of the bankrupt company.

In the past, Ray has led other companies through their bankruptcy and liquidation processes, including energy giant Enron. The current CEO of FTX has decades of experience in the business, but he was still shocked by the state of the crypto exchange when he arrived.

The price of BTC reacts negatively to the collapse of FTX on the daily chart. Source: BTCUSDT Tradingview

FTX Loses Billions in User Funds, New CEO Is in Disbelief

According to a statement filed in the U.S. Bankruptcy Court in Delaware, Ray recounted his experience with other failed businesses, entities linked to criminal activity, and more. However, the FTX CEO believes this case might be the worst he has witnessed in his career. Ray wrote:

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 happened here. From the compromised integrity of the system 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 (…).

The collapse of FTX took the industry by surprise. Prior to halting operations and filing for bankruptcy, the crypto exchange and its trading arm, Alameda Research, were seen as some of the most profitable entities in the fledgling space.

According to the statement, this perception was far from reality. The company failed to implement transparency and audit its balance sheet, used customer funds without their knowledge, and granted special benefits to Alameda’s business arm.

In this sense, Ray claims that the financial information provided by FTX and Sam Bankman-Fried is compromised and untrustworthy. The former CEO will be investigated, including other parties.

As shown in the chart below, Ray claims that the fair value of FTX’s digital assets is around $659,000. Investors valued this company at $32 billion before the events that led to its collapse, and it could be one of the worst cases of bankruptcy in crypto and the financial industry.

Source: United States Bankruptcy Court

Sam Bankman-Fried takes billions from his companies

The document filed with the court indicates the grounds for a possible criminal conviction. Ray claims that Sam Bankman-Fried and other top FTX officials have taken out billions in loans from the company. These loans are valued at over $7 billion. Ray said:

FTX Group did not maintain centralized control of its cash. Procedural failings in cash management included the lack of an accurate list of bank accounts and account signatories (…). FTX Group did not maintain proper books and records, or security controls, with respect to its digital assets.

In addition, the FTX Group allegedly used company funds to purchase homes, personal items and other assets for its employers and “advisors”. Classified financial information, including private keys that protected customer funds, was shared through insecure channels, such as personal email accounts. Ray wrote:

(…) the absence of daily reconciliation of positions on the blockchain, the use of software to conceal the misuse of client funds, the covert exemption of Alameda from certain aspects of the FTX reverse charge protocol .com (…).

Ray’s paper is over 40 pages and tells the story of a company and a CEO who met with high-ranking US politicians and regulators under the banner of “effective altruism.” It was all part of a marketing campaign, according to Bankman-Fried himselfto attract new users and continue its game.

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