“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” said John Ray, the new court-appointed CEO for FTX in bankruptcy.
So, what happened? How did a company which was once valued at $32 billion end up filing for bankruptcy and its co-founder and former CEO arrested on criminal charges? As the details of the failure of FTX trickle in, they provide a learning opportunity for other businesses: how can your business avoid the same mistakes?
What is FTX and what happened?
FTX is now a bankrupt company that was one of the world's largest cryptocurrency exchanges. FTX acted as a cryptocurrency derivatives exchange and enabled customers to trade digital currencies for other digital currencies or traditional money. It had also created its own token, known as FTT. The company, based in the Bahamas, was run by Sam Bankman-Fried, who co-founded the company in 2019 at the age of 27.
On November 2, 2022, news site CoinDesk revealed problems with FTX-affiliated trading firm Alameda Research. The revelations raised concerns with both lenders and customers about the company's leverage and solvency.
Shortly thereafter, a series of events led to a liquidity crisis, FTX filing for bankruptcy protection, and Bankman-Fried stepping down as CEO. He was later arrested in the Bahamas and extradited to the U.S. on multiple securities fraud charges.
The mismanagement of FTX left thousands financially devastated costing many investors their life savings. Others have lost hope in cryptocurrency causing a significant devaluation of the sector as a whole.
What can we learn from the collapse of FTX?
The FTX crypto collapse is a cautionary tale for small-medium businesses (SMBs) across industries. It's important to understand how the company fell apart and how their actions could have been avoided. While it is not possible to completely prevent all risks, there are steps that can be taken to minimize certain risk profiles in your organization. Below, our experts explore the top lessons that can be learned from this event: