Sam Bankman-Fried declared FTX affiliate Alameda Research to be "unauditable" and joked about sometimes losing track of $50 million worth of assets, according to a report issued by FTX's new CEO.

"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,'" according to the report filed in US Bankruptcy Court in Delaware on Sunday. Bankman-Fried's internal message said:

Alameda is unauditable. 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.

In a bit of an understatement, the report said that "Bankman-Fried's statements evidence the challenges a competent audit firm would have had to overcome to audit Alameda's business." The new filing is titled "First interim report of John J. Ray III to the independent directors on control failures at the FTX exchanges." It also details security failures such as using plain text to store private keys linked to over $100 million in assets and sloppy accounting practices like approving invoices in Slack with emoji.

First report in “spirit of transparency”

Ray, who previously oversaw the Enron liquidation, is leading FTX through bankruptcy proceedings. "We are releasing the first report in the spirit of transparency that we promised since the beginning of the Chapter 11 process," Ray said in a press release.

While FTX's new leadership tries to determine how much money they can return to harmed investors, former FTX CEO Bankman-Fried is accused of improperly diverting billions of dollars of FTX customer funds to Alameda and is facing 13 criminal charges for several types of fraud and conspiracy. Bankman-Fried himself received about $2.2 billion in payments and loans from FTX entities, mainly from Alameda Research, FTX and its affiliated debtors said last month.

Three former executives who worked with Bankman-Fried pleaded guilty to criminal fraud charges and are cooperating with government prosecutors. They are Nishad Singh, FTX's former director of engineering; FTX's former CTO Gary Wang; and former Alameda CEO Caroline Ellison.

FTX's leaders "stifled dissent, commingled and misused corporate and customer funds, lied to third parties about their business, joked internally about their tendency to lose track of millions of dollars in assets, and thereby caused the FTX Group to collapse as swiftly as it had grown," the report said.

“come up with some numbers? idk.”

Ray's report noted that companies as large and complex as FTX usually have sophisticated accounting systems. That was not the case at FTX and its sister company Alameda, which were both co-founded by Bankman-Fried.

"Fifty-six entities within the FTX Group did not produce financial statements of any kind. Thirty-five FTX Group entities used QuickBooks as their accounting system and relied on a hodgepodge of Google documents, Slack communications, shared drives, and Excel spreadsheets and other non-enterprise solutions to manage their assets and liabilities," the report said.

One internal portfolio summary noted that Alameda hadn't come up with any valuation numbers for certain cryptocurrency tokens:

Alameda often had difficulty understanding what its positions were, let alone hedging or accounting for them. For the vast majority of assets, Alameda's recordkeeping was so poor that it is difficult to determine how positions were marked. A June 2022 "Portfolio summary" purporting to model cryptocurrency positions held by Alameda stated, with respect to valuation inputs for certain tokens, that Alameda personnel should "come up with some numbers? idk."