Avoidance of Oversight and Control Framework
The downfall of FTX Group, a once-promising cryptocurrency exchange, was not just a mere coincidence but rather an outcome of sheer incompetence and greed. According to a report published by the new management, the FTX Group was under the tight grip of a small group of people who failed to establish any proper oversight or control framework.
Insufficient Management and Governance
The entire management and governance of FTX Group was confined to the control of only three individuals – Sam Bankman-Fried (founder), Nishad Singh (former director of engineering), and Gary Wang (co-founder). As a result, they enjoyed complete control over almost every aspect of the company. Moreover, the absence of experienced and independent leadership in finance, accounting, human resources, information security, or cyber security further worsened the situation. FTX Group also lacked an internal audit function, and the board’s supervision was completely ineffective.
Unreliable Communication Methods
The transfers of funds among various separate entities of FTX Group were never properly documented. The company relied on Slack, Signal, and other informal communication methods to get approvals, which at times included internal and external parties. These conversations were usually conducted using disappearing messages, making any historical review impossible.
A Chaotic Organizational Structure
FTX Group’s organizational structure was anything but appropriate. It was organized as a complicated web of parallel corporate chains with multiple owners and interests, all ultimately controlled by Mr. Bankman-Fried. Shockingly, as many as fifty-six entities within FTX Group did not produce financial statements at all. Thirty-five relied on a hodgepodge of Google documents, Slack communications, shared drives, and Excel spreadsheets to manage their assets and liabilities.
Final Thoughts
In summary, the FTX Group’s collapse was the result of a lack of appropriate oversight, control, and organizational structure, along with incompetence, greed, and the misuse of corporate and customer funds. Notably, efforts to clarify corporate responsibilities and enhance compliance were unwelcomed and resulted in backlash. This report should serve as a reminder of the importance of good governance, financial controls, and oversight to prevent similar disasters in the future, particularly in the cryptocurrency industry.
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