FTX Trading and its affiliated debtors have released their first report on the control failures at the embattled exchange on April 9. The report is based on the debtors’ review of terabytes of electronic data and communications and more than a million documents. It details the lack of risk management, inadequate record-keeping, poor cybersecurity, and Sam Bankman Fried’s overreaching role in any decision-making. Additionally, the report heavily chastised Alameda, the research and investment division of FTX, for being essentially un-auditable.
Industry researcher Colin Wu noted that engineering director Nishad Singh changed the code base on April 10 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
According to the report, there was a lot of dependence on a few executives. Singh and Gary Wang, the company’s chief technology officer, were among them. 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. Both Singh and Wang are currently cooperating with authorities, having pled guilty to charges.
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. He added, “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 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.
