Crypto chaos continues as Binance drops bid to buy rival FTX

cigaretteman

HR King
May 29, 2001
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In a startling about face, Binance, the world’s largest cryptocurrency trading platform, said Wednesday it was walking away from a deal to acquire rival exchange FTX.
Binance, in a statement, cited “mishandled customer funds and alleged U.S. agency investigations.” Binance said it had reviewed FTX’s finances as part of a due diligence review.


A spokesman for FTX declined to comment.
This enigmatic billionaire just took down a crypto rock star
The dissolution of the deal leaves the future of one of the largest crypto trading platforms in question and raises questions about the finances of its customers.
On Wednesday, the two largest cryptocurrencies — bitcoin and ethereum — both dropped 13 percent, deepening a decline that began on Tuesday after the FTX deal was announced.
This is a developing story and will be updated.

 

seminole97

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Jun 14, 2005
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seminole97

HR Legend
Jun 14, 2005
19,490
19,928
113
A few days ago we asked how much longer do we have to wait for the "first-day affidavit" in the FTX bankruptcy, traditionally the most detailed and comprehensive summary of how any given company collapsed into Chapter 11 (and in FTX's case, Chapter 7 soon, as this will soon become a full-blown liquidation)...

... and this morning we finally got our answer when it hit the docket (22-11068, U.S. Bankruptcy Court for the District of Delaware), almost a full week after FTX filed on Nov 11... and boy is it a doozy.

Because how else would one describe it when FTX's new CEO and liquidator, John Ray III, who also oversaw the unwinding and liquidation of Enron, admits that "Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here."

And just in case his shock at FTX's fraud of epic proportions was not clear enough, he adds that "from compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented."

According to Ray, he has located “only a fraction” of the digital assets of the FTX Group that they hope recover during the Chapter 11 bankruptcy. They’ve so far secured about $740 million of cryptocurrency in offline cold wallets, a storage method designed to prevent hacks. This is just a fraction of the $10-$50 billion in liabilities the company disclosed in its bankruptcy filing.

It gets better: Ray said that company’s audited financial statements should not be trusted, Ray said, adding that liquidators are working to rebuild balance sheets for FTX entities from the bottom up.

FTX “did not maintain centralized control of its cash” and failed to keep an accurate list of bank accounts and account signatories, or pay sufficient attention to the creditworthiness of banking partners, according to Ray. Advisers don’t yet know how much cash FTX Group had when it filed for bankruptcy, but has found about $560 million attributable to various FTX entities so far.

Although restructuring advisers have been in control of FTX for less than a week, they’ve seen enough to depict the crypto company as a deeply flawed enterprise. Lasting records of decision making are hard to come by: Bankman-Fried often communicated through applications that auto-deleted in short order and asked employees to do the same, according to Ray.
Corporate funds of FTX Group were used to buy homes and other personal items for employees, Ray said.

Corporate funds were also used to buy homes and other personal items for employees and advisers, sometimes in their personal names.

In the Bahamas, I understand that corporate funds of the FTX Group were used to purchase homes and other personal items for employees and advisors. I understand that there does not appear to be documentation for certain of these transactions as loans, and that certain real estate was recorded in the personal name of these employees and advisors on the records of the Bahamas," Ray said, who also noted that the company didn't have appropriate corporate governance and never held board meetings. There was no accurate list of bank accounts and account signatories, as well as insufficient attention paid to the creditworthiness of banking partners.

The filing sheds light on the sloppy business practices, such as FTX employees asking to be paid through an online "chat" platform "where a disparate group of supervisors approved disbursements by responding with personalized emojis."

Below we excerpt some of the most notable highlights from the affidavit, which we embed at the bottom of the post and which everyone should read to get a sense of just how massive Sam Bankman-Fried's fraud was.

  • I have over 40 years of legal and restructuring experience. I have been the Chief Restructuring Officer or Chief Executive Officer in several of the largest corporate failures in history. I have supervised situations involving allegations of criminal activity and malfeasance (Enron). I have supervised situations involving novel financial structures (Enron and Residential Capital) and cross-border asset recovery and maximization (Nortel and Overseas Shipholding). Nearly every situation in which I have been involved has been characterized by defects of some sort in internal controls, regulatory compliance, human resources and systems integrity.
  • Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.
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here are FTX's "Disbursement Controls"

The Debtors did not have the type of disbursement controls that I believe are appropriate for a business enterprise.
For example, employees of the FTX Group submitted payment requests through an on-line ‘chat’ platform where a disparate group of supervisors approved disbursements by responding with personalized emojis.