Penthouses and loans Inside the black hole of FTX

After the crypto exchange collapsed, the expert who handled the Enron debacle came inand was shocked by what he found

- Alex Hern

Casual observers could be forgiven for thinking the collapse of the cryptocurrency exchange FTX is another typical tale of financial mismanagement. That's how its founder, Sam BankmanFried, terms it: a liquidity crisis that tipped over into a solvency one.

FTX had deposits and loans and when depositors tried to get their money back, FTX didn't have it to hand. Sure, the loans were in fancy digital money, rather than stale dollars, but at first glance, it appears like just another big company failure.

Then you look closer, and it becomes clear that the whole edifice is in fact the corporate equivalent of three children in a trenchcoat pretending to be a fully grown man.

It is a story encompassing a financial black hole inside a company once valued at $32bn, a byzantine group structure with unclear lines of ownership, and leadership with a highly unconventional approach to governance and interpersonal relations.

That chaos was laid out in excoriating terms in a bankruptcy filing submitted last Thursday by John Ray III, who replaced Bankman-Fried as FTX's chief executive after its collapse on 11 November. "Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information," Ray wrote. Bear in mind this is the man parachuted in to oversee the collapse of energy company Enron after its fraud was revealed.

"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 added.