John J. Ray III – a Chicago-based lawyer who managed the liquidation of Enron Corp. in 2001, the largest U.S. bankruptcy at the time – is the new man in charge at FTX Group after the cryptocurrency exchange and affiliates filed for Chapter 11 bankruptcy on Friday.
Ray’s track record at Enron, where he returned as much as US$20 billion to shareholders, indicates he won’t be intimidated by the magnitude of the problems at FTX, which reportedly had US$9 billion in liabilities and only US$900 million in liquid assets before filing for bankruptcy.
Enron was a US$60 billion company when it collapsed, costing 4,000 jobs, and later becoming the subject of the documentary “Enron: the smartest guys in the room,” based on the book of the same name. The Chicago Tribune dubbed Ray a pit bull in 2007 for his work on behalf of creditors and litigation against financial institutions like Citigroup and Deutsche Bank, who he accused of conspiring with Enron officials to manipulate the company’s finances.
Ray will serve as both CEO of FTX – replacing founder Sam Bankman-Fried – and Chief Restructuring Officer, though the process for how he was appointed to the role hasn’t been made clear.
An estimated 130 FTX-related businesses are included in the bankruptcy proceedings under the Chapter 11 code, which allows for a corporation to reorganize and pay back creditors over time.
“The immediate relief of Chapter 11 is appropriate to provide the FTX Group the opportunity to assess its situation and develop a process to maximize recoveries for stakeholders,” Ray said in a statement.
“The FTX Group has valuable assets that can only be effectively administered in an organized joint process,” he said. “I want to ensure every employee, customer, creditor, contract party, stockholder, investor, governmental authority and other stakeholders that we are going to conduct this effort with diligence, thoroughness and transparency.”
Efforts to find a current email address or contact number for Ray to ask for comment for this story were unsuccessful. Pictures of him proved equally elusive.
Ray was barely in the door at FTX when he faced unauthorised transactions that moved about US$477 million off the exchange.
The exchange is in “the process of removing trading and withdrawal functionality and moving as many digital assets as can be identified to a new cold wallet custodian,” Ray said in a statement on Sunday.
The company will be “coordinating with law enforcement and relevant regulators,” in response, he added.
Ray, the son of a plumber and a homemaker mother, grew up in western Massachusetts and graduated from the University of Massachusetts before attending law school at Drake University in Des Moines, according to a 2007 profile in the Chicago Tribune.
He first made a splash in the business of bankruptcy as general counsel for the apparel company Fruit of the Loom. In 2000, during the company’s bankruptcy, he would lead a lawsuit against the firm’s former chairman and CEO for misconduct.
After Fruit of the Loom was sold, Ray was tasked with distributing money to creditors. He would be involved in many other restructuring cases throughout his career such as that of the multinational telecommunications company Nortel Networks, though Enron is what he would become most known for.
Former U.S. Treasury Secretary Lawrence Summers compared the FTX debacle to the Enron implosion in an interview with Bloomberg Television on Friday.
Summers said the rapid rise of Bankman-Fried’s empire included “whiffs of fraud” and a “vast explosion of wealth that nobody quite understands where it comes from” in making the comparison.
Ray, who was serving on the board of Enron, was selected to take control of the sinking ship and appointed chairman and president in 2001.
He worked on other bankruptcy cases up to around 2016. However, during one of his final cases with the company Overseas Shipholding Group Inc, Ray was registered by the Securities and Exchange Commission for lack of financial disclosure relating to his sale of Overseas Shipholding Group stock.
Ray will again find himself under SEC scrutiny in his new role at FTX. The watchdog is launching a joint investigation into the bankrupt company with the Commission and the Commodity Futures Trading Commission and the Department of Justice.
“Ultimately, I’m optimistic that Mr. Ray and others can help provide whatever is best,” Bankman-Fried said in a Twitter thread after the announcement that Ray was taking over.
Bankman-Fried, who is reportedly in the Bahamas at the FTX headquarters, will work with Ray on the bankruptcy proceedings, but he will no doubt be hoping that the comparisons with Enron don’t stretch to the fate of executives involved:
Jeffrey Skilling was the chief executive officer of Enron when it collapsed and in 2006, Skilling was convicted on federal felony charges, fined US$45 million and sentenced to 24 years in prison. He was released after 12 years.