From what I understand (please correct me if I’m wrong), FTX didn’t have a CFO, it’s COO was a friend with no experience, and it didn’t have a proper board of directors. Clearly, that flimsy corporate governance would not pass a standard due diligence test.
EDIT: This flow chart of shells nested in shells, like Russian dolls, speaks to why the company’s governance should have been a red-flag.
In the autopsy, the biggest red flag will probably be the lack of appropriate internal controls. One should not be able to move that kind of money without vetting by staff with appropriate background and independence, but no ownership interest. Based on the reported en masse resignation of the bulk of legal and compliance staff, it seems that it was technically possible to transfer billions in customer assets to the CEO’s company without legal/compliance involvement.
I think the class of issues that would make it inappropriate to accept donations is much narrower than the issues that would and should make a public investor (like a province pension fund) decline to invest.
Few private businesses are going to let an outsider come in on a regular basis, conduct a hard look at sensitive internal documents, and potentially publish derogatory information to the public. Even for investors, this kind of stuff is generally done under a heavy NDA and for good reason. That would make it extremely difficult to do this on a regular basis—so any scrutiny would at best catch fraud that existed at the time of scrutiny.
From what I understand (please correct me if I’m wrong), FTX didn’t have a CFO, it’s COO was a friend with no experience, and it didn’t have a proper board of directors. Clearly, that flimsy corporate governance would not pass a standard due diligence test.
EDIT: This flow chart of shells nested in shells, like Russian dolls, speaks to why the company’s governance should have been a red-flag.
https://i.redd.it/078p4g7m6cz91.jpg
I don’t think a highly branched company structure is a red flag: my understanding is that to operate a financial business legally across many jurisdictions you generally need to have subsidiaries in each jurisdiction. Ex: https://wise.com/help/articles/2974131/what-are-the-wise-group-entities
In the autopsy, the biggest red flag will probably be the lack of appropriate internal controls. One should not be able to move that kind of money without vetting by staff with appropriate background and independence, but no ownership interest. Based on the reported en masse resignation of the bulk of legal and compliance staff, it seems that it was technically possible to transfer billions in customer assets to the CEO’s company without legal/compliance involvement.
I think the class of issues that would make it inappropriate to accept donations is much narrower than the issues that would and should make a public investor (like a province pension fund) decline to invest.
Few private businesses are going to let an outsider come in on a regular basis, conduct a hard look at sensitive internal documents, and potentially publish derogatory information to the public. Even for investors, this kind of stuff is generally done under a heavy NDA and for good reason. That would make it extremely difficult to do this on a regular basis—so any scrutiny would at best catch fraud that existed at the time of scrutiny.