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One of the most memorable scenes in Adam McKay’s 2015 movie “The Big Short” finds Steve Carell and his hedge fund’s analysts on the road in Florida talking to mortgage officers who admit to fabricating loan documents.
Carell turns to his analyst and asks why they’re confessing. His analyst informs him they’re not confessing, they’re bragging.
In a new report published Sunday night, we find a nearly identical scene was playing out in the Slack channels of now-bankrupt crypto exchange FTX.
As FTX’s new management sifts through the rubble of what FTX’s failure left behind, a trove of internal communications show how leadership viewed even the possibility of coming into compliance with anything resembling normal financial controls. Which was remote, to say the least.
“Alameda often had difficulty understanding what its positions were, let alone hedging or accounting for them,” the report reads. “For the vast majority of assets, Alameda’s recordkeeping was so poor that it is difficult to determine how positions were marked.”
FTX founder and former CEO Sam Bankman-Fried, however, appeared not to see this as a failure, but a sign of success.
“In an internal communication, Bankman-Fried described Alameda as ‘hilariously beyond any threshold of any auditor being able to even get partially through an audit,'” the report reads.
“Alameda is unauditable,” Bankman-Fried continued. “I don’t mean this in the sense of ‘a major accounting firm will have reservations about auditing it’; I mean this in the sense of ‘we are only able to ballpark what its balances are, let alone something like a comprehensive transaction history.’ We sometimes find $50m of assets lying around that we lost track of; such is life.”
A company at which $50 million may come or go depending on who looks for it is, at face value, a failure. And in the end, FTX met this fate. There is no sustainable model for a business that can’t keep track of its business.
But in the crypto bubble that fostered FTX’s rise and fall, too big to track was not a journey but a destination.
As Bankman-Fried said, such is life.
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