Collapsed crypto exchange FTX used a “mixture” of “non-business solutions” to manage its multibillion-dollar assets, according to a new bankruptcy filing.
FTX CEO John J. Ray III, who replaced disgraced founder Sam Bankman-Fried, notes in a new report filed with the U.S. Bankruptcy Court for the District of Delaware that none of the FTX Group companies have an “appropriate accounting system used.
“Fifty-six entities within the FTX Group have not prepared any form of financial statements. Thirty-five FTX Group entities used QuickBooks as their accounting system and relied on a mishmash of Google Docs, Slack communications, shared Drives and Excel spreadsheets, and other non-business solutions to manage their assets and liabilities. QuickBooks is an accounting software package designed for small and medium businesses, new businesses, and freelancers. QuickBooks was not designed to meet the needs of a large and complex company like that of the FTX Group, which handled billions of dollars worth of securities, fiat currency, and cryptocurrency transactions across multiple continents and platforms.
Ray notes that Alameda Research, FTX’s bankrupt sister company, kept such mediocre data that “it’s difficult to determine how positions were marked.”
“In an internal communication, Bankman-Fried described Alameda as ‘hilariously above any threshold of an auditor who can even partially pass an audit’, adding: Alameda is unverifiable. I don’t mean this in the sense of ‘a large accounting firm will have reservations about auditing it’; I mean this in the sense of ‘we are only able to gauge what the balances are, let alone something like extensive transaction history.’ We sometimes find $50 million in assets that we’ve lost track of; that’s life.
Bankman-Fried’s statements demonstrate the challenges that a competent accounting firm would have had to overcome to audit Alameda’s operations.”
FTX filed for bankruptcy last November after its own assets collapsed and it was forced to halt customer withdrawals. Bankman-Fried faces 115 years in prison after being charged with defrauding investors and misusing client assets.
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