Crypto bros get hosed...
There have been plenty of investors burnt by the fallout from FTX. This should be the wake-up call for greater transparency and increased regulation across the crypto space.
The FTX investors were/ are some of the biggest and best-known in the world. These included Tiger Global down for $38 million, SoftBank $100 million, Paradigm $278 million, Sequoia $210 million, Temasek $275 million, Ontario Teachers $95 million and Thoma Bravo $130 million. While ThirdPoint Ventures, NEA, Iconiq Capital, Millennium Management, Brevan Howard and Altimeter Capital Management all participated in recent funding rounds. These are investors every fund and business dreams of getting in front of - they have the most capital to deploy but also the most demanding criteria with some of the most onerous terms. And yet they all fell incredibly short in FTX.
Yes, hindsight is wonderful, but the red flags were plentiful.
What's extraordinary is how founder and CEO Sam Bankman-Fried pulled the wool over their eyes and how quickly his business unravelled to reveal such a dud carcass of a structure that should never have cut the mustard with any of them. Yes, hindsight is wonderful, but the red flags were plentiful. Was it a case of FOMO - a tulip-type mania - the need to be in rather than out? Sequoia even penned a 13,000-word article on the wonders of FTX and was particularly impressed by Bankman Friedman, who at the time was not yet 30 and was playing League of Legends during the negotiation process. He should be the one wowing the funds and the bankers but instead it was the other way round, with these same funds and bankers looking to wow Bankman Friedman as to why he should take their money. These investments have now been written down to virtually zero.
It was not just the big investors whom FTX burned, it was also the cryptocurrency investor. Behind this, according to John Ray III, the new CEO of FTX, was a "complete failure of corporate controls [and] absence of trustworthy financial information."
This was a business valued at $32 billion earlier this year, which is now worth almost nothing, although there are around 100 affiliated firms, many of which have solvent balance sheets.
Disentangling the business will take more than liquidators, given the multi-jurisdictional locations of this busines
The FTX story is not going anywhere fast and it will continue to be the story over the coming months and even years. Disentangling the business will take more than liquidators, given the multi-jurisdictional locations of this business (see list) and the nature of the underlying investors beyond the big institutional players. According to Law 360 there is an 'international fight over control… [that] will have far-reaching impacts on how creditors might receive recoveries.'
* Sources: Institutional Investor, CoinDesk and WSJ