According to a new report by the current leadership of the failed crypto exchange FTX, former FTX US President Brett Harrison resigned in September due to a “protracted dispute” with CEO Sam Bankman Fried and members of his inner circle .

The report filed Sunday in Delaware before the U.S. Bankruptcy Court is the first detailed account by John J. Ray III, FTX CEO, of control failures at the exchange following the dramatic collapse of the exchange last November.

According to the report Harrison had serious concerns about how FTX US was run. This included “the lack of appropriate delegations of authority, formal management structures and key hires.”

He raised these concerns to Bankman-Fried as well as Nishad Sing, former director of engineering. His bonus was “drastically cut” and Ray reports that company lawyers instructed him to apologize to Bankman-Fried. He refused.

These allegations are consistent with Harrison’s earlier statements made via Twitter that he was threatened after making an April 2022 written complaint. He was told that he would lose his job and that Sam would “destroy my professional reputation” if the complaint wasn’t retracted and that he had to apologize.

CoinDesk reached Harrison Sunday to confirm the report, but Harrison declined further comment.

According to the report, Alameda’s legal department employee was “summarily fired after raising concerns about Alameda’s inability to control corporate risks, competent leadership, and risk management.”

Alameda Research, a trading company that was associated with FTX, filed for bankruptcy last fiscal year.

Ray’s report is more than 45 pages long and portrays FTX and its related entities as a sloppy run web of companies ruled by Bankman Fried and his circle, who had little concern for organization and internal controls.

According to the report, rebuilding FTX’s balances has been “an ongoing and bottom-up effort that continues to require significant work by professionals.” This is partly because FTX leadership frequently lost track of accounts, didn’t bother cash checks, and “collected like junkmail.”

Ray’s document states that Alameda was not even sure of its positions, “let alone hedging and accounting for them.” The June 2022 portfolio summary was supposed to show Alameda’s composition of crypto positions. However, it was allegedly fabricated by employees who were allegedly told by an unnamed higher up to “come with some numbers?” Idk.”

“Such is the life”

According to the report, Bankman Fried told employees at one point:

Almeda is not auditable. This does not mean that a major accounting firm would be reluctant to audit it; rather, I mean that we are unable to accurately estimate its assets and have lost track of them.

Bankman-Fried’s internal admissions of his employees often contradicted his public statements via Twitter or the press.

Bankman-Fried, for example, reminded his followers on Twitter about the importance of two-factor authentication by writing, “Daily reminder: Use 2FA!” The foundation of crypto security is ensuring you have done the basics.

Ray’s report found that FTX did not use two-factor authentication to protect its corporate services such as 1Password and Google Workspace. Other security concerns included the storage of seed phrases and private key to various hotWallets containing hundreds millions of dollars worth of cryptocurrency in plaintext and without encryption on an FTX Group Server.

Ray’s report revealed that FTX kept the majority of its crypto assets at all times in hot wallets despite Bankman-Fried’s public assurances that they used a “best-practice hot wallet and cold wallet-standard solution for the custody.

Ray claims that this lack of security allowed a hacker to gain control of $432,000,000 worth of crypto from various FTX wallets. This happened the night after the exchange filed for bankruptcy.

Bradley Keoun edited.