“FTX was in the control of inexperienced and unsophisticated individuals, and some or all of them were compromised individuals,” said James Bromley, counsel to FTX’s new management, at its debut appearance at the Delaware bankruptcy court after the failed exchange filed for the largest-ever crypto bankruptcy case earlier this month.

Mr. Bromley recounted in court some of the events leading up to the company’s sudden collapse, alleging major failures against its former leadership under co-founder Sam Bankman-Fried.

FTX’s new leadership is appearing at the U.S. Bankruptcy Court in Wilmington, Del. for the first time on Tuesday at the start of what will be a long, complex and unprecedented chapter 11 case.

“What we have here is a worldwide, international organisation, but which was run as a personal fiefdom of Sam Bankman-Fried.” Mr. Bromley said.

The Wall Street Journal has reported that FTX was a chaotic mess of corporate entities, customer assets and Mr. Bankman-Fried himself almost from the firm’s inception. FTX’s new management and advisers are implementing market-standard controls for the firm’s accounting, audit, cash management, human resources, risk management and data management systems, Mr. Bromley said.

He described the fall of FTX as “one of the most abrupt and difficult collapses in the history of corporate America and the history of corporate entities around the world. ” FTX is also “suffering from cyber attacks” that have occurred on the day the firm filed bankruptcy, the days following the chapter 11 filing, and still continue, Mr. Bromley said. FTX is in “constant communication” with the Justice Department and the cybercrimes unit of the U.S. attorneys office in New York, which has opened a criminal investigation, he said.

The U.S. attorney’s office in New York didn’t immediately respond to a request for comment.

The firm’s managers have begun taking steps under new Chief Executive John J. Ray III to secure customer funds and other assets. The management has hired investigators formerly employed by Securities and Exchange Commission and the Justice Department specialising in cybersecurity to track assets belonging to FTX that may have been taken without authorisation.

Customers of crypto exchanges lack the safety nets, such as deposit insurance, that kick in when banks and brokerages go under. The task of cleaning up after FTX and other recent crypto failures has largely fallen to U.S. bankruptcy courts, which have only recently begun to answer how crypto customers should fare in an insolvency.

Judge John Dorsey on Tuesday said he would grant a number of requested motions filed by FTX to help the company manage its bankruptcy, including to redact for now the identities of customers with funds frozen on the exchange.

FTX management has said it may need until January to compile a complete balance sheet detailing the company’s total assets and liabilities, but some business divisions appear to be solvent. The firm has located approximately $1.4 billion in cash that it says belongs to the business, more than double the figure given in a report to the court last week. An investment bank has been hired to explore selling any salvageable units out of bankruptcy.

FTX has also received requests from both the U.S. House and Senate to have Mr. Ray appear before Congress in December, its lawyer said Tuesday.

Some FTX assets are tied up in the Bahamas, where the firm relocated last year as the country sought to become a destination for digital currency firms worldwide. Public officials there seized the digital assets of FTX’s local operations earlier this month, which the new management has characterised as an unauthorised transfer. The Securities Commission of the Bahamas, the lead local authority investigating FTX’s collapse, has confirmed that asset transfer, but said it moved the coins “for safekeeping” in accordance with local laws.

Court-appointed liquidators in the Bahamas have said the local subsidiary controls private keys needed to transfer crypto in and out of the entire FTX complex, once estimated to hold about $16 billion in assets. Lawyers for the Bahamian liquidators said in court Tuesday that they didn’t necessarily agree with Mr. Bromley’s characterisation of which FTX entity had control over some of its customers’ funds.

“We have some disagreements, which we’ll work out over time,” said Christopher Shore, U.S. counsel for the Bahamian liquidators.

FTX has said that it will need months to sort through claims from customers as it sifts through the bad bets at its affiliated trading firm Alameda Research, which tipped FTX into bankruptcy. It hasn’t detailed how much it owes to more than one million estimated customers.

The firm has made initial disclosures in recent days, saying that its top 50 customers alone are owed roughly $3.1 billion, without specifying who they are. FTX won court approval Tuesday to keep paying the remaining employees on the payroll and vendors that it deems critical to the business.

The Wall Street Journal