The big earthquake in the currency world continues, and the biggest lenders are on the verge of bankruptcy…

FTX, the second largest exchange in the currency circle, declared bankruptcy, bringing a cold winter to the currency circle.

The management chaos behind FTX is staggering; according to new documents filed in federal bankruptcy court by John Ray III, the company’s new chief executive and liquidator.

After all, with 40 years of experience in legal and bankruptcy restructuring, John Ray, who oversaw the Enron liquidation that shocked America, still thinks that Enron’s accounting fraud was nothing compared to FTX’s:

“Never in my career have I seen such a complete failure of corporate control and such a complete lack of reliable financial information… From compromised system integrity and misguided foreign oversight, to the concentration of control in the hands of a few inexperienced and unsophisticated individuals, this situation is unprecedented.”

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The document argues that FTX’s biggest “crime” was “lack of records”, with no bank accounts, cash accounts, accounts payable or minutes of investments, decisions or even board meetings.

“The FTX Group does not have the type of payment controls that I would consider appropriate for a commercial enterprise. For example, group employees submit payment requests through an online chat platform, and different groups of executives approve payments by replying with emesis.”

“FTX Group did not have a corporate governance model in place. It never held a meeting of the board of directors. Former CEO Sam Bank man-Fried allegedly used automated message deletion software to communicate major decisions and required employees to do the same, and as a result, FTX’s operations lacked a consistent track record.”

Moreover, as a digital asset exchange, FTX did not keep books or records for its digital assets, as well as the necessary security controls. In the case of the bankruptcy of traditional enterprises or financial institutions, you can also inquire the transfer records of many banks, but the vast majority of capital flows in the currency circle are online transfers of digital currency. Without detailed records, it is almost impossible to carry out any effective management of corporate finance.

In the view of John Ray, it is only a matter of time before a crash occurs in such a disorganized business that any financial report, whether audited or not, “cannot be trusted”.

In particular, the pre-bankruptcy SBF has declared itself “effective altruism” for countless times, even as recently as four months ago, claiming that “FTX is the cleanest institution in the crypto currency space” — even if he really meant it in his heart — but his mismatches in corporate governance have also created a catastrophe for the entire industry.

First there is the ability and cognition of wealth, then wealth —

Otherwise, the more wealth, in the end, will become more evil.

On November 16, Genesis, the world’s largest currency lender, announced that its lending arm, Genesis Global Capital, would suspend redemptions and new loan origination services. Word began to spread that Genesis was on the verge of bankruptcy.

Genesis Global Capital, which serves institutional clients only, had $2.8 billion in active loans at the end of the third quarter of 2022, according to its public statement. Genesis is the parent company of Digital Currency Group (DCG), one of the largest financial institutions in the crypto space, which owns three major crypto currencies:

Genesis Global Capital, the world’s largest crypto currency lender;

Gray scale Investments, the world’s largest Bit coin holder, and its main Trust, Gray scale® Bit coin Trust; hold a total of 635,000 bit coins.

Coin Desk, a well-known crypto currency industry media outlet

Genesis had already lost $175 million in deposits after FTX declared bankruptcy last week, before its parent company, Digital Currency Group, stepped in with a $140 million liquidity injection.

It is well known that the tipping point of FTX run bankruptcy crisis was caused by Coin desk’s questioning of the balance sheet of Alameda, the affiliate company of FTX. Now the bankruptcy of FTX, in turn, leads to the near-bankruptcy crisis of Genesis, which is really “shooting a stone on its own foot”.

Genesis had already lost a lot in the bankruptcy of Three Arrow Capital, which exploded due to LUNA in May 2022. According to documents released by the liquidator, Three Arrow Capital owed 27 crypto currency companies about $3.5 billion, of which it owed Genesis about $2.36 billion in defaulted loans.

While Genesis parent company DCG later took on $1.2 billion of unsolicited debt for Genesis, making the company seemingly over the LUNA crisis, the large crypto lending platform has seen its loan book shrink by $10 billion since last year, to just $2.8 billion.

To make matters worse, Three Arrow co-founder Kyle Davies told CNBC on November 17 that FTX and Alameda “colluded” with each other to bring down Three Arrow. Kyle claimed that in the previous LUNA incident, the positions of Three Arrow Capital were colluded by FTX and Alameda to carry out Stop Hunting. As their biggest client, Three Arrow Capital was “hunted” by FTX and its positions were liquidated.

 

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