Scathing Report on FTX Control Failures Released by Debtors
On April 9, FTX Trading and its affiliated debtors released their first report on the control failures at the embattled exchange.
It details the lack of risk management, inadequate record keeping, poor cyber security, and Sam Bankman Fried’s overreaching role in any decision-making.
The report is based on the debtors’ review of terabytes of electronic data and communications and more than a million documents, according to the announcement. It also includes interviews conducted with 19 former FTX employees, among other information, it added.
On April 10, industry researcher Colin Wu noted that engineering director Nishad Singh “changed the code base to allow Alameda to withdraw unlimited amounts of crypto assets from FTX.” A week later, it was alleged that he modified it “to exempt Alameda from automatic liquidation.”
FTX creditors released the first report, mainly describing the reasons for the failure of FTX, including: SBF has the final say in all major decisions; core personnel have no risk management and operation experience shortly after graduating from university;
— Wu Blockchain (@WuBlockchain) April 9, 2023
Down the FTX Rabbit Hole
Furthermore, there was a lot of dependence on just a few executives, according to the report. One said, “If Nishad [Singh] got hit by a bus, the whole company would be done. Same issue with Gary [Wang].” Gary Wang was the company’s chief technology officer. Both are currently cooperating with authorities, having pled guilty to charges.
Chart of the balance of Alameda Wallets (Jan ’18- June ’20)
The blue dot is when Nishad Singh altered the codebase to enable Alameda to withdraw unlimited amounts of crypto from FTX pic.twitter.com/AGXJVqWQq7
— Conor (@jconorgrogan) April 9, 2023
The report also heavily chastised Alameda, the research and investment division of FTX. In internal communications, SBF, who remains under house arrest, had previously said Alameda was essentially “unauditable,” referring to a lack of information and understanding of its balances and transactions.
FTX CEO John Ray III noted that FTX Group “failed to implement appropriate controls in areas that were critical for safeguarding cash and crypto assets” before adding:
“FTX Group was tightly controlled by a small group of individuals who falsely claimed to manage FTX Group responsibly, but in fact showed little interest in instituting oversight or implementing an appropriate control framework.”
In late March, CryptoPotato reported that the European division of FTX had resumed withdrawals for customers.
Crypto Market Outlook
Crypto markets have made and held marginal gains over the weekend. Total capitalization was at $1.23 trillion during the Monday morning Asian trading session.
Bitcoin tapped $28,500 a few hours ago before retreating slightly, and Ethereum was trading flat on the day at around $1,850 at the time of writing.
Crypto markets have been trading in a tight channel for the best part of the past month.
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