The crypto exchange group FTX collapsed earlier this month after a liquidity crisis and mishandling of its clients’ funds, followed by its bankruptcy protection filing.
The downfall has unveiled FTX’s complete failure of corporate governance and internal controls, and also a complete absence of trustworthy financial information. Despite Temasek claimed that an extensive 8-month due diligence process on FTX was conducted, it appeared that the huge risk from leverage and the corporate governance regarding the abuse of clients' funds at FTX were not identified or properly addressed. The comprehensiveness of due diligence was therefore questioned, and end up with irreparable losses.
By incorporating an all-rounded due diligence covering background and reference check, regulatory and global non-compliance search, business credit-rating review, reputational review and internal control review, together with an in-depth financial audit, fundamental red flags/ deal-breakers relating to the company business, liquidity and off-balance sheet liabilities will more likely be revealed and addressed before making investment decisions and the significant loss from write-off will be avoided.