Exec who cleaned up Enron calls FTX mess 'unprecedented'
It&#x27;s an interesting read.<p>Step 1, finding the cash that&#x27;s left and putting it into big banks with tight controls on authorizing withdrawals, seems to be going OK.<p>Step 2, finding the employees, not so much.<p><i>&quot;At this time, the Debtors have been unable to prepare a complete list of who worked for the FTX Group as of the Petition Date, or the terms of their employment. Repeated attempts to locate certain presumed employees to confirm their status have been unsuccessful to date.</i><p>They thank some of the employees who stayed on trying to clean up the mess.<p>Step 3, &quot;Digital Asset Custody&quot;, is not going well.<p><i>&quot;Unacceptable
management practices included the use of an unsecured group email account as the root user to
access confidential private keys and critically sensitive data for the FTX Group companies
around the world, the absence of daily reconciliation of positions on the blockchain, the use of
software to conceal the misuse of customer funds, the secret exemption of Alameda from certain
aspects of FTX.com’s auto-liquidation protocol, and the absence of independent governance as
between Alameda (owned 90% by Mr. Bankman-Fried and 10% by Mr. Wang) and the Dotcom
Silo (in which third parties had invested). 
The Debtors have located and secured only a fraction of the digital assets of the FTX Group that they hope to recover in these Chapter 11 Cases.&quot;</i><p>A few little prison-term sized problems:<p><i>(a) at least $372 million of unauthorized transfers
initiated on the Petition Date, during which time the Debtors immediately began moving
cryptocurrency into cold storage to mitigate the risk to the remaining cryptocurrency that was
accessible at the time,</i><p><i>(b) the dilutive ‘minting’ of approximately $300 million in FTT tokens by
an unauthorized source after the Petition Date and</i><p><i>(c) the failure of the co-founders and
potentially others to identify additional wallets believed to contain Debtor assets.</i><p>They&#x27;re working the problem. Chainalysis has been retained to find where those coins went.<p><i>&quot;...investigators to
begin the process of identifying what may be very substantial transfers of Debtor property in the
days, weeks and months prior to the Petition&quot;.&quot;</i><p>That&#x27;s preparation for &quot;clawback&quot;, where transfers that occurred prior to the bankruptcy are undone. Anything in the 90 days prior to the bankruptcy gets looked at hard, and the bankruptcy can go back further where fraud is involved. The Madoff Recovery operation used clawback heavily. Which is why the Madoff recovery took so long, but got a sizable fraction of the money back. Lots of lawsuits against people who thought they got out in time. Expect that here.<p><i>&quot;Finally, and critically, the Debtors have made clear to employees and the
public that Mr. Bankman-Fried is not employed by the Debtors and does not speak for them. Mr.
Bankman-Fried, currently in the Bahamas, continues to make erratic and misleading public
statements. Mr. Bankman-Fried, whose connections and financial holdings in the Bahamas
remain unclear to me, recently stated to a reporter on Twitter: “F### regulators they make
everything worse” and suggested the next step for him was to “win a jurisdictional battle vs.
Delaware”.</i><p>Some news reports indicated that Bankman-Fried was still somehow involved, or &quot;assisting&quot;, or something. He&#x27;s not.
He has zero authority at this point.