Former FTX USA president reportedly quit after ‘prolonged disagreement’ with Bankman-Fried
A new report from failed crypto exchange FTX’s current management says former FTX USA president Brett Harrison resigned last September in part due to a “protracted disagreement” with CEO Sam Bankman-Fried and members of his inner circle.
The report, filed Sunday in the US Bankruptcy Court in Delaware, is FTX CEO John J. Ray III’s first detailed account of the control failures at the exchange since he took over after the spectacular collapse last November.
Harrison, according to the report, had serious concerns about the way FTX US was run, including “the lack of appropriate delegation of authority, formal management structure and key appointments.”
When he took those concerns to Bankman-Fried and Nishad Singh, former director of engineering, his bonus was “drastically reduced” and he was instructed by company lawyers to apologize to Bankman-Fried, according to the report. He refused.
The claims are consistent with Harrison’s previous statementsmade via Twitter, that he was threatened after making a written complaint in April 2022, telling him he would be fired and that “Sam would ruin my professional reputation” if he did not retract the complaint and issue an apology.
Reached on Sunday by CoinDesk, Harrison confirmed the report but declined to comment further.
According to the report, another employee of the exchange’s legal department was “summarily terminated after expressing concern about Alameda’s lack of corporate controls, capable management and risk management.”
Over 45 pages, Ray’s report paints a picture of FTX and related entities as a sloppily run web of companies controlled by Bankman-Fried and his circle of cronies, who cared little for organization or internal control.
Reconstructing FTX’s balance sheets has been “an ongoing bottom-up exercise that continues to require significant professional effort,” in part because FTX’s management regularly lost track of accounts and did not bother to cash checks, which “collected like junk mail,” according to the report.
Alameda was not even aware of what its own positions were, “let alone hedging or accounting for them,” the document said. A June 2022 portfolio summary purporting to show Alameda’s composition of crypto positions was allegedly produced after employees were allegedly instructed by an unnamed higher-up to “come up with some numbers? Idk.”
At one point, according to the report, Bankman-Fried told employees:
“Alameda is not auditable. I don’t mean this in the sense of ‘a major accounting firm would have reservations about auditing it’; I mean this in the sense of ‘we are only able to name what its balance sheets are, let alone something like a comprehensive transaction history.” Sometimes we find $50 million worth of assets lying around that we lost track of; that’s life.”
Bankman-Fried’s internal admissions to his staff were often directly at odds with his public statements, either via Twitter or to the press.
For example, Bankman-Fried preached the importance of two-factor authentication to her Twitter followers, writing “Daily reminder: use 2FA! 90% of crypto security is making sure you’ve done the basics.”
But according to Ray’s report, FTX failed to use two-factor authentication for its critical enterprise services, including Google Workspace and 1Password. Other security issues included storing the seed phrases and private keys of various hot wallets containing hundreds of millions of dollars worth of cryptocurrency in clear text and without encryption on an FTX Group server.
According to Ray’s report, FTX kept the vast majority of its crypto assets in hot wallets at all times, despite Bankman-Fried’s public assurances that the exchange used a “best practice hot wallet and cold wallet standard solution for safekeeping of virtual assets.”
That lack of security, according to Ray, allowed a still-unknown hacker to take control of $432 million in crypto from various FTX-controlled wallets the night the exchange filed for bankruptcy.
