Collapsed crypto exchange FTX used a “hodgepodge” of “non-enterprise solutions” to manage its billions of dollars in assets, according to a new bankruptcy filing.
FTX CEO John J. Ray III, who replaced disgraced founder Sam Bankman-Fried, notes in a new report filed with the U.S. Bankruptcy Court for the District of Delaware that none of the FTX Group companies employed an “appropriate” accounting system.
“Fifty-six entities within the FTX Group did not produce financial statements of any kind. Thirty-five FTX Group entities used QuickBooks as their accounting system and relied on a hodgepodge of Google documents, Slack communications, shared drives, and Excel spreadsheets and other non-enterprise solutions to manage their assets and liabilities. QuickBooks is an accounting software package designed for small and mid-sized businesses, new businesses, and freelancers. QuickBooks was not designed to address the needs of a large and complex business like that of the FTX Group, which handled billions of dollars of securities, fiat currency, and cryptocurrency transactions across multiple continents and platforms.”
Ray notes that Alameda Research, FTX’s bankrupt sister company, kept such lackluster records that “it is difficult to determine how positions were marked.”
“In an internal communication, Bankman-Fried described Alameda as ‘hilariously beyond any threshold of any auditor being able to even get partially through an audit,’ adding: Alameda is unauditable. I don’t mean this in the sense of ‘a major accounting firm will have reservations about auditing it’; I mean this in the sense of ‘we are only able to ballpark what its balances are, let alone something like a comprehensive transaction history.’ We sometimes find $50 million of assets lying around that we lost track of; such is life.
Bankman-Fried’s statements evidence the challenges a competent audit firm would have had to overcome to audit Alameda’s business.”
FTX filed for bankruptcy last November after its native asset collapsed and it was forced to halt customer withdrawals. Bankman-Fried is facing 115 years in prison after being accused of defrauding investors and mishandling customer assets.
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