FTX Debtors: ‘Greed and Incompetence’ Triggered Collapse

At FTX under Sam Bankman-Fried, financial oversight was apparently something of a joke.

That’s according to a report issued Sunday (April 9) by the collapsed cryptocurrency exchange’s debtors, which argues the company’s failure was the result of a small group of executives who apparently had no wish to set up proper controls.

“These individuals stifled dissent, commingled and misused corporate and customer funds, lied to third parties about their business, joked internally about their tendency to lose track of millions of dollars in assets, and thereby caused the FTX Group to collapse as swiftly as it had grown,” the FTX debtors wrote.

“In this regard,” they added, “while the FTX Group’s failure is novel in the unprecedented scale of harm it caused in a nascent industry, many of its root causes are familiar: hubris, incompetence, and greed.”

FTX’s multi-billion dollar downfall in November of last year sent shockwaves through the cryptocurrency industry, and led to a host of federal criminal charges against the company’s founder, Sam Bankman-Fried.

Bankman-Fried, 31, is free on bail and awaiting trial in October on charges that range from fraud and conspiracy to attempting to bribe officials in China. He has maintained his innocence.

The report also found a lack of oversight at the company, with most major decision-making handled by Bankman-Fried, co-founder Gary Wang and engineering director Nishad Singh, with the trio handling things that could have been delegated to other executives.

“Commenting on Wang’s and Singh’s control over the FTX Group’s technology development and architecture, an FTX Group executive stated that ‘if Nishad [Singh] got hit by a bus, the whole company would be done. Same issue with Gary [Wang],’” the report said.

When employees tried to improve compliance at the company, they were met with backlash, the debtors’ investigation found. For example, the President of FTX.US resigned after a long battle with Bankman-Fried and Singh over “the lack of appropriate delegation of authority, formal management structure, and key hires at FTX.US.”

After raising these issues, the report said, “his bonus was drastically reduced and senior internal counsel instructed him to apologize to Bankman-Fried for raising the concerns, which he refused to do.”

According to a news release from the debtors, the report is the result of a review of millions of documents, terabytes of data and communication and interviews with former FTX employees.

As PYMNTS has written, FTX’s new management has uncovered that Bankman-Fried essentially used the company as a “personal piggybank,” finding $3.2 billion in transfers to the company’s founders, with $2.2 billion going to Bankman-Fried.

Other funds were transferred to Singh ($587 million), Wang ($246 million) and Caroline Ellison ($6 million), CEO of Alameda Research, the FTX-affiliated trading company at the center of the collapse, the debtors found.

Wang, Singh, and Ellison have all pleaded guilty to the criminal charges filed against them for their role in the collapse and are cooperating with federal authorities in their investigation.