Risk Management And Due Diligence Are Questioned

For their alleged ability to assess the potential of companies and the honesty of its managers, professional investors are paid billions in fees. Nevertheless, Sam Bankman-Fried, also known as SBF, received financial support from a large number of the world's top investment organisations, including Sequoia Capital, Singapore's state-owned Temasek, the Ontario Teachers' Pension Plan, SoftBank and hedge funds Third Point and Tiger Global.

  • Court filings suggest that none of the financial statements of Alameda Research (FTX's so-called sister company) had been audited
  • It was also demonstrated that FTX didn't keep a complete list of all the bank accounts it had on hand
  • During an interview to solicit funding from renowned VC fund Sequoia Capital, SBF was secretly playing a video game. It was as if SBF's audacity to play "League of Legends" while requesting hundreds of millions of dollars was evidence of his genius

Support And Observe

Years of low interest rates and a relentless need to put money to work may have helped investors rush towards Sam Bankman-Fried. And he played right into the stereotypes he knew would work. As such, he labelled himself as an altruist, a vegan, a technology genius and cultivated his image with a pair of shorts and t-shirts.

"Mr. Bankman-Fried, 30, who had cultivated a reputation as an iconoclastic wunderkind who could multitask effortlessly and slept on a beanbag at the office. Yet more than 80 investors went along with his vision, pouring nearly $2 billion into FTX in just two years." By Erin Griffith and David Yaffe-Bellany for the New York Times

Two investors said that during discussions to solicit capital for FTX, the entrepreneur left little space for negotiation. Mr. Bankman-Fried informed them that FTX was his business and that he intended to manage it independently. The bottom line was that investors should "support and observe him".

  • Despite this, investors claim that they thoroughly examined the company's financials, which revealed a thriving, healthy corporation that offered a user-friendly platform for users to buy, sell, and store cryptocurrencies
  • Additionally, they claimed to be fully unaware of any potential self-dealing by FTX with Alameda

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by Mariia Shalabaieva on Unsplash.