Thread by @jonwu_

I just read FTX's Chapter 11 First Day Affidavit.

In it, the appointed restructuring CEO John Jay Ray III, who oversaw Enron's bankruptcy proceedings, calls FTX's case the worst of his career.

Its contents are shocking.

Here are the highlights:

👇

First off, some context.

In a bankruptcy the first day affidavit is a comprehensive summary of how the entity got to this point and why it's requesting relief via corporate restructuring.

Roughly it says, "Look: we owe a lot of people a lot of money, and we don't know exactly know where it all is, but we're looking."

It's supposed to be part of the initial Chapter 11 filing (hence "first day").

That was on November 11th.

Today is November 17th.

John Jay Ray III, the appointed overseer, is one of the most experienced restructuring executives in the world, having overseen Enron and a slew of other high-profile bankruptcies.

At his side are Sullivan & Cromwell, one of the leading restructuring law firms, and Alvarez & Marsal, one of the leading restructuring advisory firms.

Ray's statements are given under penalty of perjury.

That is all to say, this is a Serious Investigation by Serious Adults.

Ray opens with his experience, and then immediately condemns FTX as the worst case of his career:

"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."

He then identifies 4 business siloes within FTX:

- WRS Silo (FTX US, Ledger X, and affiliates)
- Alameda Silo (Alameda Research LLC)
- Ventures Silo (FTX Ventures and affiliates)
- Dotcom Silo (FTX . com)

He makes clear: "Each of the Silos was controlled by Mr. Bankman-Fried."

He immediately communicates distrust of any furnished financials.

FTX US's balance sheet shows $1.36 billion in assets as of Sept 30th.

"However, because this balance sheet was produced while the Debtors were controlled by Mr. Bankman-Fried, I do not have confidence in it"

He then goes onto recount in ¶44 SBF's negotiations with attorneys and his father around filing Chapter 11.

Which in his interview with Vox, SBF stated as his biggest regret, claiming that everything would be "70% fixed right now" if he hadn't.

¶46 explains there was roughly no corporate governance:

"I understand that many entities, for example, never had board meetings."

¶50: "The FTX Group did not maintain centralized control of its cash" -- they didn't even keep a running list of all their bank accounts!

Rough cash on hand: $564 million.

In ¶55 John Jay Ray III basically says:

"Uhm, I've heard of the FTX US auditors. The FTX Int'l auditors I uh, let's just say they're best known for having an office in the metaverse."

And in ¶56 he essentially says that the audited financials are also not to be trusted.

¶59 Human Resources: The entire FTX Group didn't have any employee management whatsoever, incapable of furnishing:

- a list of employees
- the terms of their agreements
- each employee's status

¶62 Employees were paid by through online chat, and managers "approved disbursements by responding with personalized emojis." 🙃

¶65 Digital Asset Custody:

SBF and Gary Wang controlled all of FTX's digital asset personally, using a GROUP EMAIL ACCOUNT to share private keys, software to "conceal the misuse of customer funds," and the big one:

"the secret exemption of Alameda from certain aspects of FTX . com’s auto-liquidation protocol."

Theories that Alameda was liquidation-exempt on FTX--seem confirmed by Ray's initial investigation.

Ray notes in ¶66 that $372 million in unauthorized transfers happened on the petition date (the FTX "hack"), but further that $300 million in FTT tokens were also minted AFTER THE PETITION DATE by an unauthorized source:

¶71: Sam basically used Signal to hide all of his decisions and communications with employees.

¶71 The investigative team includes:

- a former Director of Enforcement at the SEC
- a former Director of Enforcement at the CFTC
- a former Chief of the Complex Frauds and Cybercrime Unit of the US Attorney’s Office for SDNY

In other words, the A-team of bankruptcies.

¶76 Creating some distance between him and SBF:

"Mr. Bankman-Fried, currently in the Bahamas, continues to make erratic and misleading public statements. Mr. Bankman-Fried...recently stated to a reporter on Twitter: “F*** regulators they make everything worse” 💀

In sum, a crack team of restructuring experts (arguably the best in the world) is tackling arguably the worst and most disastrous financial fraud in history.

Worse, they claim, than Enron.

This expertise is likely costing the FTX entities >$1 million PER DAY.

And that's before we're really into the bankruptcy proceedings!

This is just the initial *first look* investigation into all the shenanigans happening inside of FTX.

See here for the full affidavit: storage.courtlistener.com/recap/gov.usco…

It also reveals SBF--definitively--to be a liar and a fraud.

A team of the most experienced restructuring experts in the world under penalty of perjury have submitted to the courts a document that shows nearly EVERY public statement SBF has made in the last week to be a lie.

tl;dr FTX is worse than Enron:

- run by SBF + a few insiders using Signal
- committing immense fraud
- and no sense of bank accounts, employees, cash on hand, liquidity management, digital asset custody, cybersecurity practices, or any form of corporate control or governance

Thanks for following along.

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