New FTX CEO Describes 'Complete Failure of Corporate Controls' in Scathing Court Filings
Plus: Twitter is alive and well, the U.K. considers unprecedented tax hikes, and more...
The latest revelations about collapsed cryptocurrency exchange FTX show a company that was even more shambolically managed than was known or even thought possible. "Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information," said John Jay Ray III, the new FTX CEO who's been appointed to oversee the company's bankruptcy, in Thursday court filings.
Ray, a veteran of corporate bankruptcies including Enron, described the management practices of FTX and its related companies as "unacceptable," "unprecedented," and "historical" (but not in a good way).
Sensitive customer information was kept on unsecured email servers. The company lacked a complete record of its bank accounts and a complete list of its employees. Expenses were approved by a shifting group of supervisors, who often signed off on reports with personalized emojis. FTX funds were used to purchase homes and other personal items for company executives, and complete records of those transactions weren't kept. Company executives also communicated with auto-deleting chat software, making a complete accounting of decisions impossible.
Throughout the filings, Ray stresses that records provided by FTX and its related companies while it was under the control of former CEO Sam Bankman-Fried couldn't be counted on to be accurate. He also questioned the reliability of audits performed of FTX-linked companies by Prager Metis, an accounting firm that claims to be the "first-ever CPA firm to officially open its Metaverse headquarters in the metaverse platform Decentraland."
Bankman-Fried resigned from the company he founded last week after concerns over the exchange's solvency saw customers rush to make withdrawals that the company didn't have the funds to meet. It's been reported that Bankman-Fried, a prolific donor to Democratic political campaigns, was loaning billions of dollars of customer deposits to a cryptocurrency trading firm he owns, Alameda Research, to make risky trades.
Thus far, Ray has managed to track down about $740 million in cryptocurrency owned by FTX. The company owes customers a reported $8 billion, reports The New York Times.
Bankman-Fried gained a lot of flattering press attention for his commitment to the utilitarian ideas of philosopher Peter Singer and the related effective altruism movement. His stated plan had been to accumulate a fortune in cryptocurrency in order to give it away to the most effective charitable causes.
In remarkably candid messages to Vox reporter Kelsey Piper earlier this week, Bankman-Fried conceded that his professed support for effective altruism was mostly a front.
His fall from grace has kicked off some intense self-reckoning in the mostly online effective altruism movement.
Some effective altruism proponents have stressed that their consequentialist philosophy of using data to guide charitable giving and prioritizing the greatest good for the greatest number of people shouldn't be tarred by Bankman-Fried's alleged fraud and misdeeds.
Others have said that the disgraced CEO's risky financial dealings could be justified under a more radical effective altruist belief that posits it's worth taking insane risks if they come with a huge potential upside for human and animal welfare.
A few people on Twitter have even suggested that Bankman-Fried's confession that his effective altruism was a sham is actually evidence of his sincere belief in the philosophy. By distancing himself from effective altruism, he's preventing the utility-maximizing moral framework from being disgraced along with him.
FREE MINDS
Reports of Twitter's death have been greatly exaggerated. As the sun rose on Friday morning, the social media website is still functioning despite fears that the turbulent management of new owner Elon Musk might sink it overnight.
Musk had given Twitter employees a Thursday deadline to explicitly commit to his self-described "hardcore" work ethic and visions for the site or resign with three months severance pay. Hundreds of employees have reportedly resigned already.
Fortune reporter Kylie Robison's tweets that as much as 75 percent of the company was resigning and that physical access to Twitter headquarters had been cut off led to panicked musing that the site was finished last night.
https://twitter.com/kyliebytes/status/1593391954976382979?s=20&t=AFSru5DWPcWh5F3Aekfh_g
"Damn Twitter," "#RIPTwitter," and "#GoodbyeTwitter" trended briefly last night. Twitter's continued survival suggests things aren't quite so dire at HQ. Should the company implode, the dynamic tech sector will surely find another way for us to yell at each other online.
FREE MARKETS
The United Kingdom's ever-so-brief "libertarian moment" is well and truly over. On Thursday, British Finance Minister Jeremy Hunt unveiled a slew of massive tax hikes to balance the country's budget. Reports Reuters:
In a bid to restore Britain's fiscal reputation after the chaos caused by former prime minister Liz Truss's plans for sweeping tax cuts, Hunt outlined a budget programme on Thursday to save 55 billion pounds a year to fix the public finances. Almost half the belt-tightening is due to come from tax increases.
QUICK HITS
• A new working paper finds that privately financed and operated nonprofits were instrumental in improving England's road system during the 19th century.
• The Biden administration is moving to shield Saudi Crown Prince Mohammed bin Salman from lawsuits related to his role in the murder of journalist Jamal Khashoggi, reports the Associated Press.
• The election for the congressional seat currently held by Rep. Lauren Boebert (R–Colo.) is still too close to call and might head to a recount.
• Debris from the ruptured Nord Stream pipelines shows traces of explosives, say Swedish investigators.
• Theranos founder and convicted fraudster Elizabeth Holmes is set to be sentenced today by a federal court in San Jose, California. The disgraced tech CEO is asking for no more than 18 months in prison. Federal prosecutors are seeking a 15-year sentence.