FTX Control Failures Revealed: Scathing Report Released
• The new management of the failed exchange, FTX Trading and its affiliated debtors, released a report on the control failures that led to one of the industry’s largest collapses.
• The report detailed a lack of risk management, inadequate record keeping, poor cyber security, and Sam Bankman Fried’s overreaching role in any decision-making.
• It was also alleged that engineering director Nishad Singh modified code to exempt Alameda from automatic liquidation.
FTX Control Failures Released by Debtors
The new management of the failed exchange released a report on the control failures that led to one of the industry’s largest collapses. On April 9, FTX Trading and its affiliated debtors released their first report on the control failures at the embattled exchange. It details the lack of risk management, inadequate record keeping, poor cyber security, and Sam Bankman Fried’s overreaching role in any decision-making.
Risk Management Issues
The report is based on the debtors‘ review of terabytes of electronic data and communications and more than a million documents, according to the announcement. It also includes interviews conducted with 19 former FTX employees, among other information, it added. On April 10, industry researcher Colin Wu noted that engineering director Nishad Singh „changed the code base to allow Alameda to withdraw unlimited amounts of crypto assets from FTX.“ A week later, it was alleged that he modified it „to exempt Alameda from automatic liquidation.“
Overdependence on Executives
FTX creditors released the first report mainly describing reasons for failure such as SBF having final say in all major decisions; core personnel had no risk management or operational experience shortly after graduating from university; there was overdependence on just a few executives as noted by one employee saying “If Nishad [Singh] got hit by a bus tomorrow we’d be screwed”; market makers were not required to hold capital which resulted in leverage being used excessively; and processes were created without validating controls or understanding how they interacted with existing structures causing mispriced orders resulting in losses for customers who executed those trades inadvertently due to system errors or other issues.
Poor Cyber Security Practices
In addition to these issues there were various improper practices related to cyber security including allowing direct access via remote desktop protocol (RDP) from external sources without adequate authentication or authorization protocols while also using shared accounts with no segregation between user roles which allowed users unrestricted access across many systems. This meant anyone could have potentially accessed sensitive customer information without proper oversight or authorization making them vulnerable targets for malicious actors trying steal funds or manipulate markets through unauthorized trading activities without detection until after losses had already occurred due to lack strong internal controls safeguarding against such actions taking place undetected within organization itself.
Overall this report highlights key areas where FTX fell short when it came managing its operations ensuring proper compliance practices were being followed order protect customers from potential losses due negligence or fraud committed by company officials themselves whether intentional not so make sure similar issues don’t occur again future exchanges need stronger procedures place mitigate these risks proactively before they become costly mistakes like ones seen here recently at now defunct FTX Exchange Ltd..