During the 2022 Super Bowl, Larry David told us in ads for FTX Group (FTX) that cryptocurrency wouldn’t work and was not worth investing in. Now, less than a year later, FTX has filed for Chapter 11 bankruptcy and will likely be investigated by the SEC and the Justice Department.
Larry David, meanwhile, is being sued as part of a class action suit due to his representation of FTX.
In the bankruptcy filing, new FTX CEO John Ray III stated that, “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.” It should be noted that Mr. Ray was once the CEO of Enron and oversaw its liquidation during its years in bankruptcy.
Some of the more egregious examples of poor internal controls at FTX include:
- Alameda Research LLC, an affiliate of FTX, loaned former FTX CEO Sam Bankman-Fried $1 billion.
- Many FTX entities never had board meetings
- FTX did not maintain centralized control of its cash and did not have an accurate list of bank accounts and account signatories.
- FTX employees submitted payment requests through an online chat platform, which were then approved by supervisors using emojis.
- Corporate funds were used to purchase homes and other personal items for employees and advisors.
- It appears very few records were kept. Mr. Bankman-Fried often communicated by using applications that were set to auto-delete after a short period of time and encouraged employees to do the same.
This is only a partial list of the internal control issues at FTX and the full story behind what happened there will take years to be written. Mr. Bankman-Fried’s net worth, once estimated at $23 billion, has all but evaporated. Hopefully, Larry David listened to himself and didn’t invest in FTX.
All entities, no matter the size, need internal controls. If your entity needs a review of internal controls, suspects fraud or has a “complete failure of corporate controls,” please contact Tom Pratt or Brian Webster.
About Schneider Downs Accounting Advisory
Schneider Downs Accounting Advisory Services offers a variety of technical accounting advisory services as well as outsourced accounting and financial advisory services for every type of organization. To learn more, visit our Accounting Advisory Services page.
