According to the newly appointed FTX CEO John Ray III's declaration of support for Chapter 11 proceedings on Thursday, Sam Bankman-Fried utilized business cash from the FTX Group to buy homes and other personal assets for staff and consultants.
“In the Bahamas, I understand that corporate funds of the FTX Group were used to purchase homes and other personal items for employees and advisors.” Ray wrote in the declaration.
“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.”
Read also: New FTX Chief Appalled By Mismanagement At Crypto Exchange Under Sam Bankman-Fried
The use of business funds for personal expenses is not always prohibited. To do so in the United States, the following entities must either authorize it or not be defrauded by it:
- Treasury Department (IRS, state government, etc.)
- Owners of the business (shareholders, partners, LLC members, etc.)
- Creditors (creditor rights commonly arise in instances of fraud or bankruptcy)
The FTX Group was registered in the Bahamas, a country where U.S. tax authorities like the IRS have no legal authority. Normally, courts carefully review any permission to use corporate funds for personal use.
Read also: FTX, Bahamas Regulator Fight Over Control Of Bankruptcy Proceedings: WSJ
One well-known instance involved Andrew Fastow, the CFO of Enron, who used his own firm, LJM Cayman L.P., to charge Enron management fees.
LJM Cayman L.P. siphoned millions of dollars into Fastow’s pocket, with Enron purportedly authorizing it, claiming the arrangement did not “adversely affect the interests of Enron.”
Ray was also in charge of liquidating Enron.
Ray further indicated that to be reimbursed for professional expenses, FTX employees only had to submit the request by chat and a supervisor would immediately approve with a personalized emoji.
"The debtors did not have the type of disbursement controls that I believe are appropriate for a business enterprise," the restructuring veteran wrote.
"For example, employees of the FTX Group submitted payment requests through an on-line 'chat' platform where a disparate group of supervisors approved disbursements by responding with personalized emojis."
To read about the latest FTX developments, check out Benzinga's FTX home page.
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