John Ray, the restructuring expert who has taken over as CEO of beleaguered cryptocurrency exchange FTX Ltd., says he has never seen in his 40-year career “such a complete failure of corporate controls and such a complete absence of reliable financial information.” Mr. Wray has cleared many failures in his time, from Enron Corp. to Nortel Networks Corp. But, FTX argued Thursday in a U.S. bankruptcy court filing, “From compromised systems integrity and flawed regulatory oversight overseas, to concentrating control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation it’s unprecedented.” Mr Ray’s findings came just days after he became head of FTX on November 11. However, any signs that the crypto company was deficient in financial controls and disclosure seem to have eluded major investors for years. This includes the Ontario Teachers’ Pension Plan, which pumped US$95 million into Bahamas-based FTX in two investment rounds, in October 2021 and last January, through its Teacher Business Development arm. In a statement to The Globe and Mail late Thursday, Teachers spokesman Dan Madge said the fund will zero out its investment in FTX by the end of the year. Teachers conduct “robust due diligence on all private investments,” he said, describing the general process. “Supported by experienced, external advisers with financial, commercial and other relevant expertise, and often in consultation with investment partners, due diligence is designed to use company-provided material and other research to assess the risk associated with a specific investment,” he said. “In the case of FTX, our underwriting process involved working closely with third-party advisors and FTX to investigate commercial, regulatory, tax, financial, technical and other issues,” said Mr. Madge. “Recent reports suggest possible fraud perpetrated at FTX, which is deeply concerning to all parties. We fully support efforts by regulators and others to review the risks and causes of this business failure.” Teachers did not provide details on the exact timing of his FTX due diligence, nor details on his specific findings from the process. “We are disappointed with the outcome of this investment, take all losses seriously and will use this experience to further strengthen our approach,” Mr Madge said. Temasek Holdings Ltd., Singapore’s sovereign wealth fund, issued a lengthy statement Thursday that acknowledged the “lessons” it will take from the “inherent risks” of its $275 million FTX investment, which it is now writing off . . As FTX’s Canadian ties grew, was due diligence done by regulators and the Ontario Teachers’ Pension Plan? Who are the big names affected by the FTX crash? Tom Brady, Ontario Pension Plan, Steph Curry and others Temasek said it conducted a nearly eight-month due diligence process on FTX that ended in October 2021, for which it reviewed audited financial statements and sought advice from legal and cybersecurity experts in an unspecified number of jurisdictions. It also gathered “qualitative feedback” about FTX by interviewing people “familiar with the company, including employees, industry participants and other investors.” Temasek found that FTX was profitable, he said. “We recognize that while our due diligence procedures may mitigate some risks, it is impractical to eliminate all risks.” “It is apparent from this investment that perhaps our faith in the actions, judgment and leadership of Sam Bankman-Fried, shaped by our interactions with him and the opinions expressed in our discussions with others, would seem misplaced.” Mr. Ray says he has brought in several law firms and other professionals to help him manage the affairs of FTX, which he filed for bankruptcy. Part of his job is to respond to regulators investigating Mr. Bankman-Fried, the founder and former chief executive of FTX. In the bankruptcy filing, Mr. Ray describes FTX as a collection of interconnected companies with no central cash management system, missing financial statements for a number of its businesses and an expense payment system in which executives approved expenses via chatroom emoji. Mr. Bankman-Fried, the son of two Stanford Law School professors, “frequently communicated using apps that were set to automatically delete after a short period of time and encouraged employees to do the same,” Mr. Ray said. This resulted in the absence of decision-making records, “one of the most pervasive failures of the FTX.com business.” Now, under Mr. Ray Leadership, FTX companies “record things,” he said he said. Mr. Ray said companies in two of FTX’s business lines received audit opinions from Armanino LLP, a 70-year-old California firm he knows. The auditing firm for the exchanges doing business as FTX.com was Prager Metis, ”a firm I’m not familiar with,” Mr. Ray said, ”whose website shows it to be the ‘first CPA firm to open officially its Metaverse headquarters on Decentraland’s metamorphosis platform.” New York-based Prager Metis says it traces its roots back 100 years and has more than 100 associates and 24 offices. Neither Prager Metis nor Armanino responded to e-mails from The Globe seeking comment. “I have significant concerns about the information presented in these audited financial statements,” Mr. Ray said, referring to Prager Metis. He said neither FTX’s stakeholders nor the bankruptcy court should rely on the financials “as a reliable indication of the financial conditions” of those parts of FTX’s business. Mr. Ray said that under his leadership of FTX so far, he could not locate audited financial statements for Alameda Research LLC, an affiliated trading firm and hedge fund run by Mr. Bankman-Fried, or a series of business investment companies associated with FTX. FTX was channeled nearly $10 billion in client assets in Alameda, the Wall Street Journal and the crypto publication CoinDesk first reported last week. Mr. Ray said in the filing that FTX Group’s “unacceptable management practices” included “the use of software to conceal the misuse of client funds” as well as a secret exemption of the Alameda hedge fund from certain FTX.com protocols. Mr Ray also said FTX “did not have the type of disbursement controls that I believe are appropriate for a business enterprise”, describing how employees submitted payment requests via an online chat platform, in which supervisors “approved disbursements by responding with personalized emojis. “ Mr. Ray also said he understood that FTX corporate funds were used to purchase homes in the Bahamas and other personal items for employees and consultants. For some transactions, “there does not appear to be any documentation that they were loans.”
