Emoji for expenses, penthouses, slipshod accounting: The most damning details in new FTX report

Earlier Thursday, FTX CEO John Ray III filed a declaration with the United States Bankruptcy Court for Delaware, the latest successful the implosion of 1 of the world's largest cryptocurrency exchanges.

Ray, who helped shepherd Enron done its ain bankruptcy, minced nary words astir the authorities of the institution oregon the behaviour of the erstwhile enforcement team, describing it arsenic 1 of the worst examples of firm controls he'd ever encountered. It was a damning remark from idiosyncratic who has 40 years of ineligible and restructuring experience.

Here are immoderate of the astir important revelations from Ray's filing:

1. A full deficiency of fiscal and firm controls

"Never successful my vocation person I seen specified a implicit nonaccomplishment of firm controls and specified a implicit lack of trustworthy fiscal accusation arsenic occurred here."

Ray opened his filing torching erstwhile management, including erstwhile CEO Sam Bankman-Fried, for the nonaccomplishment by enactment to drawback and code a stunning, multibillion-dollar spread successful the Alameda Research-FTX equilibrium sheets. The losses for investors whitethorn scope arsenic precocious arsenic $8 billion. But with nonexistent oregon deficient accounting, auditing and disbursement systems, it volition instrumentality Ray and his forensic investigators "some time" to uncover the truth.

2. Slipshod accounting volition necessitate forensic analysis.

"I bash not judge it due for stakeholders oregon the Court to trust connected the audited fiscal statements arsenic a reliable denotation of the fiscal circumstances of these [companies]."

FTX's caller main said helium had "substantial" concerns astir the fiscal positions helium was presenting to the court. FTX's implosion revealed a monolithic spread successful the institution equilibrium sheets, but until blockchain investigation and forensic accounting are completed, Ray said it was not "appropriate for stakeholders oregon the Court to rely" connected the numbers presented.

Accurate financials are a cardinal metric for valuing and investing successful a company. Venture superior firms poured billions into poster kid Bankman-Fried and his companies, valuing them successful the tens of billions of dollars.

A modular facet of immoderate task superior concern is simply a owed diligence period, wherever books are opened and audited financials are shown to prospective investors. Ray's assertion that the fiscal statements for galore of FTX's subsidiaries are unreliable raises caller questions astir the diligence performed by immoderate of the world's biggest task firms.

3. Penthouses, perks and idiosyncratic items

"In the Bahamas, I recognize that firm funds of the FTX Group were utilized to acquisition homes and different idiosyncratic items for employees and advisors. I recognize that determination does not look to beryllium documentation for definite of these transactions arsenic loans, and that definite existent property was recorded successful the idiosyncratic sanction of these employees and advisors connected the records of the Bahamas."

Other reports person elaborate lavish perks allegedly fixed to FTX employees successful the Bahamas. Ray's filing indicated that firm funds were utilized to acquisition homes for employees and advisors, sometimes successful their name. Loans were not recorded from FTX to those individuals — arsenic is emblematic with akin arrangements astatine different companies. Instead, individuals were fixed the deeds to these properties, according to Ray, escaped and clear, successful their ain names.

Notably, Bankman-Fried's $40 cardinal penthouse concisely deed the marketplace successful the aftermath of the bankruptcy. It has since been removed from nationalist listing.

4. Emoji for expenses

"The Debtors did not person the benignant of disbursement controls that I judge are due for a concern enterprise.  For example, employees of the FTX Group submitted outgo requests done an online 'chat' level wherever a disparate radical of supervisors approved disbursements by responding with personalized emojis."

Despite an full manufacture devoted to disbursal controls and reimbursements, Bankman-Fried's squad utilized interior messaging to merchandise firm funds into the hands of employees astir the world. It isn't instantly wide what level FTX used, though the institution is known to person utilized Slack for interior communications.

5. An vantage for Alameda

Unacceptable absorption practices included the usage of an unsecured radical email [...] to entree confidential backstage keys and critically delicate information [...] the lack of regular reconciliation of positions connected the blockchain, the usage of bundle to conceal the misuse of lawsuit funds, the concealed exemption of Alameda from definite aspects of FTX.com's auto-liquidation protocol, and the lack of autarkic governance [...]"

Alameda Research, the secretive trading steadfast astatine the bosom of Bankman-Fried's empire, executed trades connected FTX alongside different organization and idiosyncratic traders. The 2 firms were person than publically acknowledged, however, successful airy of Ray's declaration that Alameda was secretly exempted from "certain aspects" of FTX's auto-liquidation protocol.

It isn't instantly wide what aspects Ray meant. In crypto trading, liquidation is astir analogous to a borderline call, wherever a levered presumption is closed retired by an speech owed to a melodramatic displacement successful an underlying asset's price.

CNBC has made aggregate requests for remark from Bankman-Fried.