John Ray III — This week, FTX CEO John Ray III delivered an interim report on the company’s activities.
Ray stated that practically every bitcoin asset was kept in hot wallets by the firm.
Report and service
John Ray III oversaw FTX’s Chapter 11 bankruptcy restructuring.
Ray indicated that, while Amazon Web Services is a great tool, it is not fit for a multibillion-dollar corporation’s private keys. This was not mentioned in the interim report.
The FTX CEO scolded the company’s use of Amazon Web Services in the same way he chastised QuickBooks, the company’s accounting software.
“Nothing against Quickbooks. Very nice tool,” said Ray as he testified before the House Financial Services Committee in December.
“It’s not for a multibillion dollar company.”
Instead, the FTX CEO indicated in a court filing on Sunday that the company stored nearly every cryptocurrency asset in hot wallets.
John Ray III emphasized his point by citing the $432 million in illegal transactions that depleted FTX wallets on November 11, the day after the firm filed bankruptcy.
John Ray III submitted an interim report with the Delaware bankruptcy court, keeping them up to date on the company’s efforts to recover funds and the challenges they encountered.
Ray claimed that the FTX Group’s lack of reliable record keeping complicated the endeavor.
Furthermore, the investigation included an in-depth examination of how the organization was run and its failure to maintain security.
“In this regard, while the FTX Group’s failure is novel in the unprecedented scale of harm it caused in a nascent industry, many of its roots are familiar, hubris, incompetence, and greed,” it wrote.
The company’s collapse
The disgraced creator of FTX, Sam Bankman-Fried, constructed a crypto empire.
The empire, however, crumbled in November 2022.
SBF’s trading desk, Alameda Research, was discovered to hold billions of FTX Token or FTT on its balance sheet.
Additionally, accusations have appeared accusing the firms of mixing user funds with their own.
Sam Bankman-Fried is now charged with thirteen felonies.
Meanwhile, the FTX Group has been attempting to collect customer funds for the past five months.
Sam Bankman-Fried is accused of a number of charges, including:
- Wire fraud
- Securities fraud
- Conspiracy to commit bank fraud
- Defrauding the Federal Election Commission
Prosecutors said that SBF and his colleagues lied to the US in their FEC-related claims.
He was also accused of hindering the Federal Election Commission’s ability to enforce federal law.
As a result, Sam Bankman-Fried was charged with further charges, including:
- Conspiracy to operate an unlicensed money transmitting business
- Conspiracy to commit wire fraud on lenders to Alameda Research
- Conspiracy to make unlawful political contributions and defraud the FEC
Keeping the majority of the funds in hot wallets and the private keys on Amazon Web Services, according to John Ray III, was a poor risk management strategy.
Amazon Web Services and its cloud computing competitors are not impregnable.
According to data breach tracker Firewall Times, the service has seen many large-scale breaches since 2017, exposing the personal information of hundreds of millions of voters, Instagram users, bank clients, consumers, and COVID-19 testing site visitors.
“The FTX group undoubtedly recognized how a prudent crypto exchange should operate, because when asked by third parties to describe the extent to which it used cold storage, it lied,” said Ray in the report.
He also cited the company’s reaction to advisers and counterparties in 2022, as well as a tweet from Sam Bankman-Fried in 2019.
According to the two emails, FTX used both hot and cold wallets.
According to John Ray III, the firm did not protect the crypto assets with offline, air-gapped encrypted, and geographically distributed computers.
Ray also referenced correspondence from a person associated with LedgerX, an FTX Group-owned derivatives exchange.
However, it was not included in the bankruptcy procedures, forcing FTX.US to rely more on cold wallet storage.
Nonetheless, no mechanism was in place prior to the bankruptcy, according to John Ray III.