Failed crypto giant FTX's failure was rooted in SBF's 'incompetence and greed'

Failed crypto exchange FTX was governed by 'hubris, incompetence, and greed,' according to a new report by the company's debtors.

The report is the first released by FTX debtors since the rapid November collapse of the multi-billion dollar digital asset company. Its founder, Sam Bankman-Fried, has pleaded not guilty to criminal fraud charges. 

The Bahamas-based crypto-empire was run without sufficient financial and accounting controls, and had a tendency to lose track of millions of dollars in assets, which members of the company would internally joke about, according to the report.

'Despite the public image it sought to create of a responsible business, the FTX Group was tightly controlled by a small group of individuals who showed little interest in instituting an appropriate oversight or control framework,' read the report.

A newly released debtor's report about the collapse of FTX attributes a significant amount of the company's failure to the 'hubris, incompetence, and greed' of its top executives, including founder Sam Bankman-Fried 

John Ray III was appointed CEO and chief restructuring officer of FTX after the firm collapsed in November. He has been overseeing the Chapter 11 process

'These individuals,' who included Bankman-Fried, and top executives including former engineering director Nishad Singh and former chief technology officer Gary Wang, '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,' continued the report.

'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.' 

The report shed light on specific details of the failed company's disorganization, including that at the time that the company filed for Chapter 11 Bankruptcy last year, there was not even a complete list of its employees. 

In a press release, FTX's new chief executive officer and chief restructuring officer, John Ray III said the company is 'releasing the first report in the spirit of transparency that we promised since the beginning of the Chapter 11 process.'

'We are continuing our efforts to review the events that factored into the fall of FTX and to identify and recover as much value as possible for creditors,' he said.

The report went on to say that 'reconstruction of the Debtors' balance sheets is an ongoing, bottom-up exercise that continues to require significant effort by professionals.'

So far, digital assets worth more than $1.4billion have been recovered and secured, while an additional $1.7billion has been identified and is in the process of being recovered.

Debtors reviewed more than 1million documents and analyzed the firm's available financial records and electronic devices, in addition to interviewing nearly 20 employees in order to piece together the aspects of the business that led to its spectacular failure.

In the report, the debtors concluded that 'FTX Group lacked independent or experienced finance, accounting, human resources, information security, or cybersecurity personnel or leadership, and lacked any internal audit function whatsoever. Board oversight, moreover, was also effectively non-existent.' 

'Individuals,' who included Bankman-Fried, and top executives including former engineering director Nishad Singh and former chief technology officer Gary Wang, '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,' read the debtor's report

Former Alameda Research CEO Caroline Ellison pleaded guilty last year to charges pertaining to her role at the company. She is cooperating with investigators

Bankman-Fried is expected to go to trial in October after entering a not guilty plea to fraud and campaign-finance law charges several months ago. It was recently disclosed that he transferred $2.2billion from FTX to his personal account before the company went under

Bankman-Fried is expected to go to trial in October after entering a not guilty plea to fraud and campaign-finance law charges in March. 

Several other company executives have already pleaded guilty to various charges.

Singh, who is cooperating with prosecutors, pleaded guilty in February to fraud.  

Wang and former Alameda Research CEO Caroline Ellison also pleaded guilty last year to charges in connection to their roles at FTX and its sister trading firm.

Last month, it was revealed that Sam Bankman-Fried secretly transferred $2.2billion from FTX to his personal account and $1billion to five members of his inner circle before the cryptocurrency exchange collapsed, according to bankruptcy court filings.