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Data chaos at FTX reveals massive abuse

FTX managed important data online and stored private keys on Amazon servers.

By Mike Hesp
• 3 min read
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Data chaos at FTX reveals massive abuse

FTX managed important data online and stored private keys on Amazon servers. Under Dutch bureaucratic norms, the data chaos at FTX might not have happened. Far away in the Bahamas, the crypto exchange evolved into a chaotic data silo. The new CEO, John Ray III, and the restructuring team have to clean up the mess. In a court filing, he sums up the unfortunate events. A flawed administrative setup, a lack of risk management, and private keys stored on Amazon servers are just the tip of the iceberg.

Data management via Slack, Google, and Excel

Besides inadequate financial controls, the administration was especially chaotic. FTX "relied on a jumble of Google docs, Slack communications, shared drives, and Excel spreadsheets" to manage assets and liabilities.

The restructuring team also found issues with the books: about 80,000 transactions were left as unprocessed entries in "general QuickBooks accounts." Small and medium-sized businesses mainly use this accounting software. Such a system is ill-suited for running a multi-billion company, Ray said.

Private keys on Amazon servers

Storing passwords online is a bad idea. Storing private keys (the keys to a crypto wallet) on a centrally hosted server is even worse. The bankrupt crypto exchange probably saw no problem with this, as Ray explains: "FTX stored the private keys of their crypto assets on servers on Amazon Web Services (AWS)."

That was a particularly bad risk-management approach, he adds. And indeed: shortly after the exchange collapsed, a hacker siphoned about $400 million from one of the company's hot wallets.

Power monopoly among the founders

Admittedly, the complaints at FTX were discussed internally. But the founders’ influence over major decisions was nearly unlimited. Besides Sam Bankman-Fried and Gary Wang, former CTO Nishad Singh was also part of the management team.

In addition to the clear power monopoly, FTX also failed to file financial data on time at the end of reporting periods. Moreover, there were no back-end audits conducted to detect and correct material misstatements.

The case against Sam Bankman-Fried is scheduled for October. When creditors can expect damages remains to be seen.

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