One of the four silo companies that played a major role in the demise of bitcoin exchange FTX provided Sam Bankman-Fried, the former CEO of FTX, with a personal loan to the tune of $1 billion.
According to a legal statement issued by John Ray III, the current CEO of FTX, which was listed in the active Chapter 11 bankruptcy filings, Bankman Fried took more money.
According to the statement, Alameda Research provided Bankman-Fried with a $1 billion direct loan and also lent $543 million to FTX engineering director Nishad Singh.
The man charged with picking up the pieces after Enron’s catastrophic fall, Ray III, was tough in his first petition in the United States Bankruptcy Court for the District of Delaware.
He even said that the circumstance was the worst he had ever seen in his professional career, pointing to the “complete breakdown of corporate controls” and the dearth of reliable financial information:
According to the study, “this scenario is unparalleled, from compromised system integrity and inadequate regulatory oversight to the concentration of power in the hands of a relatively small number of inexperienced, uninformed and perhaps corrupt employees.”
Controls will be requested to be placed in accounting, auditing, cybersecurity, human resources, data protection and other systems as part of the Chapter 11 petition. These regulations will be implemented across four groups of companies connected to the FTX corporate structure.
There were four silos in total. FTX Group Ray III specifies four “silos”, each of which could be seen as a general term for a different type of FTX Group company. The “WRS” silo is used to organize businesses that are owned by West Realm Shires Inc. FTX US, LedgerX, FTX US Derivatives, FTX US Capital Markets, and Embed Clearing are some of these companies.
Alameda Research is listed in the petition as a separate silo with separate businesses, although the “Ventures” silo is actually comprised of Clifton Bay Investments LLC and Ltd, Island Bay Ventures Inc., and Debtor FTX Ventures Ltd. The latter “Dotcom” silo is where FTX Trading Ltd. and other exchanges using the FTX.com moniker are located.
Ray III’s lawsuit claimed that Bankman-Fried owned all of the silos, with former FTX CTO Zixiao “Gary” Wang and Singh owning insignificant stakes in the business. Numerous financial institutions, endowments, sovereign wealth funds, and families whose lives were irrevocably changed by FTX’s demise were among the third-party equity investors in the WRS and Dotcom silos.
Bankman Enterprise Fried’s is also charged in the case with a variety of other significant crimes. The FTX Group as a whole was found to have failed to maintain accurate bank account listings, “maintain centralized control” of its finances, and paid “insufficient attention to the creditworthiness of banking partners.” “
More information is revealed by Ray III, who states that the WRS silo was the only branch that underwent a valid audit by a reputable accounting firm. He raises concerns about the independently audited financial records of the Dotcom silo, but can’t find any independently vetted financial accounts for the Alameda or Ventures silos.
According to the petition, there also apparently were serious flaws in the way the money was distributed.
For example, FTX Set staff members used an online “chat” to search for the payment platform. A variety of supervisors then approved the payments by responding with various emojis,” the section read.
Ray III goes on to allege that documentation was missing for activities such as loans and that corporate monies were used to purchase homes and personal items for consultants and workers. Ray III claims that despite the absence of evidence, this did indeed happen.
Custody of digital assets is insecure at this time.
Custody of bitcoin assets was also in disarray, with insufficient records or security precautions for FTX Group’s digital assets, according to the Chapter 11 filing.
Bitcoin assets held by major network companies were accessible to Bankman-Fried and Wang. In Lightning III, “improper activities” are described. “This involves accessing secret keys and extremely sensitive information for the worldwide network of organizations through an unprotected group email account.
In addition, the company did not regularly reconcile its bitcoin holdings and used software to mask the misappropriation of client money. This allowed Alameda to subtly omit certain components of the automatic liquidation strategy implemented by FTX.com.
Perhaps the most surprising part of the problem is that debtors who filed for bankruptcy only got “a fraction of the digital assets” they expected to recover. Despite the fact that cold wallets with a total value of $740 million in cryptocurrency have been seized, it is still not known who the funds belong to.