Molly WhiteApr 9, 2023

The new team in charge of the FTX bankruptcy have released their first interim report on the failures of control at FTX and related businesses.

It's 43 pages long, let's go through it 🧵

https://www.courtlistener.com/docket/65748821/1242/1/ftx-trading-ltd/

#FTX #FTXcollapse

Exhibit A – #1242, Att. #1 in FTX Trading Ltd. (Bankr. D. Del., 22-11068) – CourtListener.com

Exhibit(s) (Notice of Filing First Interim Report of John J. Ray III to the Independent Directors on Control Failures at the FTX Exchanges) Filed by FTX Trading Ltd.. (Attachments: # 1 Exhibit A) (Pierce, Matthew) (Entered: 04/09/2023)

CourtListener
Show threadMolly White
The debtors reiterate the stunning lack of recordkeeping and controls at FTX: "Normally, in a bankruptcy involving a business of the size and complexity of the FTX Group, particularly a business that handles customer and investor funds, there are readily identifiable records, data sources, and processes that can be used to identify and safeguard assets of the estate. Not so with the FTX Group."
Apr 9, 2023 at 10:52pmWeb
Show threadMolly WhiteApr 9, 2023
"Upon assuming control, the Debtors found a pervasive lack of records and other evidence at the FTX Group of where or how fiat currency and digital assets could be found or accessed, and extensive commingling of assets."
Show threadMolly WhiteApr 9, 2023
FTX executives "stifled dissent, commingled and misused corporate and customer funds, lied to third parties about their business, [and] joked internally about their tendency to lose track of millions of dollars in assets"
Show threadMolly WhiteApr 9, 2023
Debtors are having to cobble together financial records from what they're able to find in QuickBooks and Slack records 💀
Show threadMolly WhiteApr 9, 2023
It sounds like the debtors are limited somewhat by the fact that laptops belonging to SBF and other high-level insiders are currently in the hands of the Bahamian Joint Provisional Liquidators, who've been less than cooperative (according to the US team, at least).
Show threadMolly WhiteApr 9, 2023
Nishad Singh, Gary Wang, and Caroline Ellison have all pled guilty and are cooperating with the DOJ, making it infeasible for the debtors to interview them for bankruptcy purposes until after the criminal trial is over. They have interviewed others, though.
Show threadMolly WhiteApr 9, 2023
FTX had "an environment in which a handful of employees had, among them, virtually limitless power to direct transfers of fiat currency and crypto assets and to hire and fire employees, with no effective oversight or controls to act as checks on how they exercised those powers."
Show threadKim Crayton ~ Her/SheApr 9, 2023
@molly0xfff I’m so surprised 🙄
Show threadMolly WhiteApr 9, 2023

"The 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."

“if Nishad [Singh] got hit by a bus, the whole company would be done. Same issue with Gary [Wang]."

Show threadMolly WhiteApr 9, 2023
Some new context on the sudden resignation of Brett Harrison in September 2022: he "resigned following a protracted disagreement", after which his bonus was drastically reduced.
Show threadMolly WhiteApr 9, 2023
In a separate instance, a lawyer who was hired only three months prior, who learned about the North Dimension bank accounts, was "summarily terminated after expressing concerns about Alameda’s lack of corporate controls, capable leadership, and risk management."
Show threadMolly WhiteApr 9, 2023
"At the time of the bankruptcy filing, the FTX Group did not even have current and complete lists of who its employees were."
Show threadMolly WhiteApr 9, 2023
"As a general matter, policies and procedures relating to accounting, financial reporting, treasury management, and risk management did not exist, were incomplete, or were highly generic and not appropriate for a firm handling substantial financial assets."
Show threadMolly WhiteApr 9, 2023
The small accounting firm used by FTX entities for most accounting "appears to have a small number of employees and no specialized knowledge relating to cryptocurrencies or international financial markets".
Show threadDarwinApr 9, 2023

@molly0xfff Thank you for this summary. It’s absolutely mind-blowing. I can’t help but feel a strange a sense of awe at the sheer nerve it takes to carry out that level of deception, irresponsibility, and complete disregard of one’s customers. Astonishing, really.

#FTX

Show threadRobin CapperApr 10, 2023
@darwinrz @molly0xfff And how they got away with it for so long
Show threadMermadeApr 10, 2023
@darwinrz @molly0xfff it's breathtaking and also unhinged. Why? Hubris and greed alone doesn't seem to cover this craziness. It's like they were in it for a ride they believed was going to end.
Show threadDarwinApr 10, 2023

@Mer @molly0xfff Exactly. They had to know it was going to end eventually…or did they? 🤷🏽‍♂️ And if they did…there was no other way for it to end other than horribly.

#FTX

Show threadMolly WhiteApr 9, 2023

More QuickBooks shade.

"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"

Show threadMolly WhiteApr 9, 2023
"Approximately 80,000 transactions were simply left as unprocessed accounting entries in catch-all QuickBooks accounts titled 'Ask My Accountant.'"
Show threadMolly WhiteApr 9, 2023
Sam Bankman-Fried: "Alameda is unauditable... we are only able to ballpark what its balances are, let alone something like a comprehensive transaction history. We sometimes find $50m of assets lying around that we lost track of; such is life"
Show threadMolly WhiteApr 9, 2023
"Thousands of deposit checks were collected from the FTX Group’s offices, some stale-dated for months, due to the failure of personnel to deposit checks in the ordinary course; instead, deposit checks collected like junk mail."
Show threadMolly WhiteApr 9, 2023
Transfers in the tens of millions of dollars were approved via Slack emoji, or discussed in disappearing Signal or Telegram chats.
Show threadMolly WhiteApr 9, 2023
"Only four months after the real estate purchase had closed did the employee enter into a promissory note with Alameda in which he undertook to repay the funds used to purchase the property. Other insiders received purported loans from Alameda for which no promissory notes exist."
Show threadMolly WhiteApr 9, 2023
Accounts were opened using names and email addresses that were not obviously linked to FTX, using pseudonymous email addresses, in the names of shell companies created for these purposes, or in the names of individuals (including individuals with no direct connection FTX)
Show threadMolly WhiteApr 9, 2023
"Alameda also transferred funds to insiders to fund personal investments, political contributions, and other expenditures—some of which were nominally 'papered' as personal loans with below-market interest rates and a balloon payment due years in the future."
Show threadMolly WhiteApr 9, 2023
The document reiterates known allegations about Alameda's "unique ability to trade and withdraw virtually unlimited assets [on FTX], regardless of the size of its account balance and without risk of its positions being liquidated."
Show threadMolly WhiteApr 9, 2023
The FTX group had no cybersecurity staff whatsoever.
Show threadDr. Fancypants, Esq.Apr 10, 2023
@molly0xfff Gosh, it sure would be a shame if the IRS told those “insiders” that they need to retroactively treat those “loans” as ordinary income, and pay back taxes plus penalties.
Show threadScott JampaApr 9, 2023
@molly0xfff
Show threadDanielApr 9, 2023
@molly0xfff the perfect company to embezzle money from does not exis…
Show threadEyeInHandApr 10, 2023

@molly0xfff

Just, wow.

Show threadEibrielApr 9, 2023
@molly0xfff just crazy, any normal company do everything it can to get as much as possible on record
Show threadAlex RodríguezApr 9, 2023
@molly0xfff props for correct semicolon use at least
Show threadBenjamin JohnsApr 10, 2023
@molly0xfff You can start from the sentence "We have created a bank that can't be audited" and work out from first principles what kind of people would be attracted to this project, why they wanted it, and how it would end.
Show threadWayne WernerApr 10, 2023
@molly0xfff I wish I could just find $50m in my coat pocket every now and again 🤮
Show threadRobert J. BergerApr 10, 2023
@ketmorco @molly0xfff I keep looking, but so far no luck..
Show threadPhilip Mallegol-HansenApr 10, 2023
@molly0xfff Still awaiting the day I find $50m of assets lying around, as you do.
Show threadMermadeApr 10, 2023
@molly0xfff he didn't take any of it seriously did he? Thank you for this fantastic thread.
Show threadPatty KimuraApr 10, 2023
@molly0xfff A bunch of rich idiots gave millions to a "boy wonder" propped by white male media goo goo boys, and the "wonder" was a con and the "boy" was a ruse, surprise. They gave their money and credibility to a stupid incompetent ADULT grifter.
Show threadM. NewtonApr 10, 2023
@molly0xfff Move fast and break <faith in the idea that you are at all competent to handle people's life savings, investments, and futures>.
Show threadDouglas KingApr 10, 2023
@molly0xfff
Makes business built on complexity of cryptocurrency markets but can't integrate QuickBooks properly.
Show threadAndrew FApr 10, 2023
@molly0xfff I like to imagine that some young hotshot bankruptcy lawyer or forensic accountant signed up for this because FTX was in the news and they thought it'd be sexy or cool or something they could brag to their family about and now they're locked in a basement wading through an 80K line spreadsheet filled with emojis and denying they have a day drinking problem.
Show threadSarah T. Roberts, Ph.D.Apr 9, 2023
@molly0xfff lol. Big Skyler in Breaking Bad energy.
Show threaddark was the night 🌚Apr 10, 2023
@ubiquity75 Skyler actually did some accounting
Show threadFrank Bennett 🇯🇵Apr 10, 2023
@ubiquity75 @molly0xfff Skyler bore a emotional burden that seems utterly lacking here. We sometime misplace millions! LOL
Show threadCeremus Apr 9, 2023

@molly0xfff When the techbros get all of their accounting knowledge from Barney at Parks and Rec.

Actually, that's probably not fair to Barney.

Show threadInterpipes 💙Apr 10, 2023

@molly0xfff seems a weird fixation by them given the problem is not the tools they chose, it was the lack of application of those tools in any kind of consistent/competent manner.

I’m sure it’s possible - if inefficient - to account FTX in QB.

Sure, at that size there are undoubtedly “better” tools, but the only difference between these idiots not using quickbooks properly and not using anything else properly is some fat invoices for the licencing of whatever the alternative would have been.

Show threadUnlettered PeasantApr 10, 2023

@interpipes @molly0xfff
Honestly they kind of lay that out - QuickBooks has no mechanism to track Crypto.

There are two ways to do this. The first is to build it yourself. Building this kind of software, though, requires not just coders, though, it requires specialized accounting knowledge as well as tech domain knowledge (front ends, dbas, middleware, etc).

The easier way would be to take some piece of COTS and customize it. Still requires specialized knowledge, just less of it.

Show threadInterpipes 💙Apr 10, 2023

@justanotherengineer @molly0xfff Using QB would absolutely be dumb, and a LOT of manual work, but it could be done.

My point was that, IMO, it wouldn’t have mattered what software these assholes bought in: the problem was that they did not care.

Show threadUnlettered PeasantApr 10, 2023

@interpipes @molly0xfff
Oh, agreed. I've worked in a financial org where the tech was "ok" but tech security controls were generally bad. But the financial management was above board (mgmt approval for transactions, double approval for important stuff, lots of documentation and records).

Tech can't save you if your processes, procedures, and controls suck (or are non-existent). In FTX's case, they lacked controls, processes, procedures, tech controls, security infrastructure.... everything

Show threadFen 😷Apr 10, 2023
@molly0xfff
Show threadScott JampaApr 9, 2023
@molly0xfff how just how...
Show threadPeachMcDApr 10, 2023

@molly0xfff
This whole thread is a representative sample of how rich wyt Libertarians would run anything they got their hands on

@ThomHartmann

Show threadNihl L'AmasApr 9, 2023
@molly0xfff Cool, so we can all add "worked at FTX" to our resumes.
Show threadElias MårtensonApr 10, 2023
@NIH_LLAMAS @molly0xfff Indeed. And the really great thing about that is that regardless of whether the person actually worked there, it's an indication that they should not be interviewed. 🙂
Show threadKaran JApr 10, 2023
@molly0xfff how is it these people didn't immediately turn whistleblowers or even raise it with the media?
Show threadSimon LucyApr 10, 2023

@karanj @molly0xfff

Mutual incompetence along with what sounds like cult behaviour. Most successful cults have a straight guy to handle the books, well a bent straight guy.

Show threadKaran JApr 10, 2023
@simon_lucy @molly0xfff sure but how about from the folks that got fired?
Show threadSimon LucyApr 10, 2023

@karanj @molly0xfff

We've no real idea who is cooperating with authorities, how many are traumatised and who actually knew anything, also being fired or laid off may not change their loyalties if they were deeply invested in the cult.

Show threadBill, organizer of stuffApr 9, 2023
@molly0xfff Same, frankly