Doesn't anyone do due diligence anymore?
01/12/2022
These days, it is hard to know what due diligence means – look at these recent investment failures into FTX
- Ontario Teachers' Pension Plan, which put $95mn into FTX, insists that its professionals "conduct robust due diligence on all private investments".
- Tiger Global tossed in $38mn and paid outside consultants, including Bain & Co, to do the work.
- Sequoia Capital, handed FTX founder Sam Bankman-Fried $214mn even though he played video games during his pitch to them, has walked a fine line.
All the above missed what FTX's new chief has described as a "complete failure of corporate controls".
What would DD could have found in a review
|
Due Diligence Review Area |
Pass / Fail |
What Due Diligence Would Have Found |
|
Officers and Principles |
Fail |
No track record (you could argue that no one has a track record here, but then everything else needs a careful review). |
|
Organizational Structure |
Fail |
Conflicts exist between sister companies having the same ownership (Alameda was FTX's biggest client). |
|
Compliance Structure |
Fail |
Certainly not enough with the right oversight. |
|
Conflicts |
Fail |
Too many to count. |
|
Custody |
Fail |
Client assets were moved to its sister firm. |
|
Valuation |
Fail |
FTT was basically an in-house cryptocurrency with no real market value. |
Read the source articles here……
- https://www.duediligenceworks.com/blog/ftx-a-failure-of-due-diligence
- https://www.ft.com/content/e739d9ed-b8ee-4d8e-ad29-0d01889d5775
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