FTX – Lessons Learned from a Lack of Due Diligence

What do a supermodel, Shark Tank star and sovereign wealth fund have in common? They all failed to ask questions before investing their money. The investments were related to the cryptocurrency exchange FTX and its trading arm affiliate, Alameda Research. Here are 4 factors you should consider before you invest in any potential investment. Conflicts of Interest Between Affiliated Entities The adage “follow the money” can help you identify potential conflicts of interest between entities. Conflicts of interest may sometimes be unavoidable. They aren’t always a bad thing. However, related party transactions should be disclosed. You should also understand how such conflicts are mitigated. Contrary to assurances that Alameda and FTX were separate entities, the two firms were intertwined. In fact, the collapse of FTX can be directly attributed to Alameda trading billions of dollars from FTX accounts and leveraging the exchange’s native token, FTT, as collateral. At the time, it would have been easy to press both companies for more information. Weak Governance and Poor Financial Controls A strong effective control environment reflects the values of an organization. A legitimate organization will have well-defined policies and procedures that govern its operations. Additionally, those controls will be overseen by an