John J. Ray III, a survivor of Enron, Fruit of the Loom, and other bankruptcies, is now required to pick up the broken pieces of Sam Bankman-Fried’s turbulent rule.
In a harsh court filing this Thursday, John J. Ray III, appointed CEO of the failed cryptocurrency exchange FTX, claimed that he’d not seen “such a whole failure of corporate controls and such a full non-appearance of trust worthy financial information.” His years of experience in the chaotic world of corporate bankruptcy and restructurings, and even in fraud cases, was a sign of something.
In the last two years, Ray, 63, has worked on a lengthy list of among the nation’s most notorious and most ugly restructurings and failures that include energy giant Enron which was the seventh largest bankruptcy in the history of the country, and subprime mortgage provider Residential Capital; tele-communications company Nortel Networks; underwear maker Fruit of the Loom; and a myriad of other. He is tussled in court with charming former CEOs (Fruit), sorted through inflexible monetary structures (ResCap), dealt with complex international operations (Nortel), and garnered far-higher-than-expected funds back for creditors (Enron).
Ray Ray, who works out of Ray, and is employed by a Naples, Florida, firm named Owl Hill Advisory, is in the middle of the raging storm at FTX. That had a value of $32 billion before it went under. Ray was named CEO on the 11th of November. Sam Bankman-Fried, a 30-year-old known as SBF quit due to an unexpected liquidity crisis that led to the company having to pay an additional $8 billion. “I fucked up,” SBF tweeted while the business was in the process of failing. A variety of U.S. agencies, including the Securities & Exchange Commission and the Department of Justice, are currently conducting an investigation.
“I think he will stick to the same play-book here as Enron, but it’s going to be harder for him than Enron because it is more of a mess.”
Ray’s role is to dig into the murky details of FTX’s collapse and deconstruct the complex web of corporate entities to find assets, including the funds lost or stolen. He will also increase the value of stakeholders’ investments by restructuring or selling the complicated variety of companies. This week, FTX stated that it had retained the investment banks Perella Weinberg Partners, subject to court approval, to plan for the sale or restructuring of some of its companies. “Based on our feedback over the past week, we are pleased to study that many regulated or licensed subsidiaries of FTX, within & outside of the U.S., have solvent balance-sheets, responsible management, & valuable franchises,” Ray stated an announcement.
Since becoming the CEO of FTX, Ray has gathered his team of lawyers and advisors for two-day meetings every day, at 9:15 a.m. and 6 p.m. every seven days of the week. In exchange for his work, Ray will be paid $1,300 per hour plus reasonable expenses out of pocket as per a statement from Edgar Mosley, managing director of the restructuring consultancy business Alvarez & Marsal, filed on Sunday at bankruptcy court. The first bankruptcy hearing for FTX court is organized for Tuesday in Delaware.
“He is one of the very best in this co,” says company Jared Elias, a Harvard Law School professor focusing on corporations’ bankruptcy. “He has a track record of parachuting some of the bad situations and getting the best possible results for creditors.”
Ray has kept a tiny online presence as the norm for someone in this position. Rare photos of him were posted of him about 15 years ago, as part of an online profile published by The Chicago Tribune. According to Autism Capital, a journalist who chronicled the FTX decline on Twitter humorously wrote, “John J. Ray III has to be similar to the corporate version of The Wolf in Pulp Fiction. When you bring him in, you take care of your corporate mess and don’t even ask questions, and he vanishes in the distance.” Winston Wolf was the character played in the film by Harvey Keitel.
Expert in restructuring and FTX Chief Executive Officer John J. Ray III in a rare photograph of his Chicago office when he was at Prudential Tower in 2007.
This made Ray’s announcement regarding the current situation at FTX quite a shock and possibly an indication of what’s to be. “I was astonished that such a short while after the liquidation, he would make such an unstable comment,” explains Mark Lichtenstein, a partner in the bankruptcy department at Akerman who was involved in Enron with Ray but isn’t associated with FTX. “That was so un-characteristic of such a cool customer like him.”
Although FTX’s press office did not invite Ray available for a conversation with Forbes, he’s well-known within the tense industry of restructuring and bankruptcy. Ray’s strategy is to be immersed in the details and quickly join teams explicitly designed for the particular blowup he’s working on. In FTX, Ray quickly separated the business into four buckets, also known as silos. Each one is overseen by an independent board of directors with a prestigious history, including some Ray has collaborated with previously in other assignments.
“John is an uncommon bird in the world of bankruptcy. He’s been through several notable assignments and has been extremely accomplished. He’s his person,” says Jim Bromley, a partner at Sullivan & Cromwell and co-head of its restructuring department, who has worked alongside Ray on several bankruptcies. He has been part of the legal team who works on FTX. “He’s a straight shooter. John isn’t a pretense. John.”
Ray was raised in the western part of Massachusetts, as his father was an industrial plumber. His mother is a stay-at-home mother, as per an 2007. Chicago Tribune story. A degree holder of the University of Massachusetts at Amherst in western Massachusetts, he earned a law school degree at Drake University in Des Moines, Iowa, in 1982 and started his profession in Chicago at the law company Mayer Brown, working on mergers and acquisitions as well as employment law, and securities plans. As general counsel for Waste Management and its affiliates and its affiliates, he was involved in environmental remediation projects, which included Superfund sites, as well as managed complicated criminal and civil litigation and investigations.
“He has a track record of parachuting into some nasty situations and getting the best possible results for creditors.”
His first brush with filthy bankruptcies came at Fruit of the Loom. In 1999, less than 2 years after he was hired at the under-wear maker, deeply indebted Fruit filed for bankruptcy. As a chief administrative officer & general counsel, Ray managed “full aspects” of the Chapter 11 proceeding, as per his resume. He also orchestrated the legal action opposed to Bill Farley, the Chicago attacker who has been the organization’s chairman & CEO, in connection with a $65 million bank credit that Farley had obtained and the organization had guaranteed.
Enron’s colossal energy crisis, which sent its CEO to jail for 12 years, was the largest bankruptcy of Ray’s professional career. Being chairman of the newly reorganized firm following the bankruptcy filing of Enron, Ray oversaw the $23 billion liquidation of the company’s operations. He was in charge of the prosecution of over 1,000 cases, including fraud allegations, and was also charged with collecting money from creditors. The amount of money recovered by creditors was more than 50 cents per dollar, which was far more than was anticipated in the previous year.
“He was a cynic,” says Jim Latimer, a Dallas accountant who was an Enron director along with Ray. “He was aware of what you can do, how the courts would think, and what you could do to get the most out of the situation for different creditor groups. He certainly projects confidence, but he does not project I-know-everything-there-is-to-know and itis-only-my-way-or-the-highway. That’s not John.”
In addition to Fruit and Enron, Ray was also the chief officer of the defunct Canadian telecoms firm Nortel along with Nortel’s U.S. affiliates, beginning in 2010. Then, in 2014, Ray was appointed an unofficial board member of GT Advanced Technologies, which could file for Chapter 11 bankruptcy after it had to cancel a supplier contract with Apple. In 2016, the company was commissioned to run a trust to liquidate its assets from Residential Capital, which had at one time been among the most extensive U.S. subprime mortgage firms. Additionally, he worked alongside Overseas Ship Management, Ditech Mortgage, & Burlington Industries in their Chapter 11 proceeding.
Like FTX, many of these firms were once the darlings of their respective industries and had assets spread around the globe before they fell into financial trouble. Nortel is one example. It was worth $250 billion during the height of the tech bubble in the 1990s; however, it sank due to an accounting scandal and mistakes in management. After several years in litigation and asset sale, Nortel handed out more than $7 billion to its creditors.
Contrary to other turnaround executives and board members who have to manage multiple responsibilities simultaneously, Ray is known for taking on one massive mess at a time, which typically requires years of sifting through, according to Harvard’s Elias. For FTX, Ray must first identify the assets needed to build a realistic balance sheet image. Then, he’ll need to find out how to get cash back to the company’s creditors. This process is likely to require a lot of litigation and finger-pointing.
This type of situation might take years or more to resolve, as Enron did before. “He did an exceedingly imposing job work at Enron, and this is poignant of Enron to some degree,” Lichtenstein declares. “I think he will stick to the similar playbook here as Enron, but it is going to be tough for him than Enron because it is more of a mess.”