FTX’s new CEO shocked at corporate controls; Chapter 15 opens for one debtor

By Sarah Lizee

Olympia, Wash., Nov. 17 – FTX Trading Ltd.’s newly appointed chief executive officer called the company’s corporate controls a “complete failure” in court documents filed Thursday with the U.S. Bankruptcy Court for the District of Delaware.

John R. Ray III, who replaced FTX’s former CEO Sam Bankman-Fried on Nov. 11, has 40-plus years of legal and restructuring experience and has supervised a number of other corporate failures, including that of Enron Corp.

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” Ray told the court on Thursday.

“From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”

Ray said many of the companies in the FTX group, especially those organized in Antigua and the Bahamas, did not have appropriate corporate governance – with several never having held board meetings.

Several new independent directors have been appointed as directors of the primary companies in the FTX group. Ray said the appointment will provide the group with appropriate corporate governance for the first time.

Ray also stated that the FTX group did not maintain centralized control of its cash.

“Cash management procedural failures included the absence of an accurate list of bank accounts and account signatories, as well as insufficient attention to the creditworthiness of banking partners around the world,” Ray said.

Under the new CEO’s direction, the debtors are establishing a centralized cash management system with proper controls and reporting mechanisms.

New York Chapter 15 case

On Wednesday, FTX Trading subsidiary FTX Digital Markets Ltd. was put into Chapter 15 in the U.S. Bankruptcy Court for the Southern District of New York by two joint provisional liquidators in order to gain recognition of a Bahamian liquidation as a foreign main proceeding.

However, in a motion filed in the Delaware court on Thursday, FTX Trading asked for the Chapter 15 case to be transferred from the New York court and administered alongside the Chapter 11 cases.

“The filing of the Chapter 15 case without advance notice and in [New York] is a blatant attempt to avoid the supervision of this court and to keep FTX DM isolated from the administration of the rest of the debtors, which constitute the vast majority of the remainder of the FTX group,” FTX Trading said.

FTX Trading said former CEO Bankman-Fried appears to be supporting efforts by the joint provisional liquidators to undermine the Chapter 11 cases and to move assets from accounts in the Bahamas under the control of the Bahamian government.

“In verified messages posted through Twitter, Mr. Bankman-Fried just yesterday expressed profane disdain for regulators, his regrets at these Chapter 11 cases having been filed and disclosed his goal that ‘we win a jurisdictional battle vs. Delaware’ to have any proceedings occur in the Bahamas ,” FTX Trading said.

FTX Trading added that it has credible evidence that the Bahamian government is responsible for directing unauthorized access to the debtors’ systems for the purpose of obtaining digital assets of the debtors, which took place after the start of the cases.

“The appointment of the JPLs and recognition of the Chapter 15 case are thus in serious question. It appears that the automatic stay has been flaunted, by a government actor no less,” FTX Trading said.

The exchange has headquarters in The Bahamas. The company filed Chapter 11 bankruptcy on Nov. 11 under case number 22-11068.

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