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 WhiteApr 9, 2023
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."
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 đź’€
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

"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

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 threadInterpipes đź’™

@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.

Apr 10, 2023 at 8:44amWeb
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 đź’™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