John Ray III, the newly appointed interim CEO of bankrupt crypto exchange FTX, decided that such a job would be worth at least $1,300 an hour. Therefore, he would like to receive $10,400 a day. So his monthly salary will be over $200,000.
Another top director level manager also earns a lot - about $ 1,000 per hour, while the minimum rate for a senior manager starts at $ 900 per hour.
FTX, despite its “near-bankruptcy” status, continues to face huge payroll costs. They pay fixed salaries and spend money on outsourced corporate restructuring specialists despite frozen funds and lack of clear accounting. At the same time, the exchange owed almost 10 billion to clients and investors and still hopes to find money to avoid bankruptcy. In a way the given information resembles “a feast in time of plague”
John Ray, a seasoned bankruptcy specialist, will do a conditional audit and "inventory" of any remaining liquid assets.
Legal documents filed over the weekend in the U.S. Bankruptcy Court for the District of Delaware ahead of the first hearing on Nov. 22. shed more light on the insolvency proceedings.
As a reminder, FTX's estate began to decline rapidly following the CoinDesk report published on November 2. As a result, the solvency of Alameda Research, a subsidiary of FTX, was called into question. After that, both Alameda and the exchange crashed.
Taking into consideration all this information, why does the company continue to incur such huge expenses for interim managers? Is everything alright here? Is there a corruption component or attempts to carry out certain illegal procedures with the withdrawal of assets from the company?
According to Edgar Mosley, managing director at restructuring consultancy Alvarez & Marsal, the continuation of salary payments is necessary for the preservation of the resources and value of the FTX estate.
He believes that without these actions it would not be possible to keep the remaining team. Otherwise the employees may seek alternative employment opportunities, which would probably diminish stakeholder confidence in the debtors’ ability to successfully reorganize the company.
The high rates of four top crisis managers, ranging from $900 to $1,300 an hour, are, in his opinion, critical to maintaining and administering what remains of the company, if there is a task to unwind its debts in an orderly way. So, there is no corruption, just the price of honesty is high
Though such eye catching fees are common practices in corporate restructuring practices for large companies. John Ray's annual income of nearly $2.5 million would represent just a fraction of the $3.1 billion FTX owes to its principal creditors.
Previously, the liquidation of financial behemoth Lehman Brothers, which was completed in 2010, cost $2 billion.
Mosley also recommends continuing to pay as much as $17.5 million to critical FTX contractors with support agreements. Without them, crypto assets still stored in exchange wallets could be stolen, and key servers could be hacked due to a possible hacker attack. In this scenario, the exchange would suffer bigger losses, and still existing assets would be lost. This situation would only cause problems for creditors and bankruptcy courts.
But determining who are the key suppliers is currently complicated because of FTX’s cavalier attitude to record-keeping. Ray was harshly critical of the poor level of management and the disregard for internal accounting and documentation. It was the worst he had ever seen in his 40-year restructuring career, including the complicated bankruptcy processes of the energy company Enron.
FTX is still having trouble identifying a full list of creditors and even who was on its payroll, making it difficult to pay $1 million in back pay. Ray also criticized the practice of using the company's funds to purchase luxury real estate in the Bahamas for FTX's top management.
As we can see, FTX turned out to be those "Augean stables," whose cleaning today requires such big money.