Lessons for Finance Professionals/Aspirants from collapse of FTX

Ancient Indian economist Chanakya once said “life is too short to learn from your mistakes, it’s better to learn from others mistakes and improve your life”

FTX Collapse:

One of the largest Cryptocurrency Exchange collapsed suddenly and USD 8 Billion of customer funds were wiped out. About USD 32 Billion of customer assets were managed by them till two weeks ago affecting one million customers.

Sam Bankman-Fried the promoter of FTX was the poster boy of the Crypto world till it collapsed.

Its an open secret that the Crypto transactions, the world over have not been  largely regulated by the Authorities and has a dark underbelly of political donations and alleged money laundering etc.

The Promoters of FTX and its associate Almeda Research have a lot of answering to do to SEC and the Justice Dept.

But it’s a blood bath for the Investors who lost their funds!

Prevention is better that cure:

The main reasons for the collapse may be attributed to :

  • Lack of proper Govt. regulations
  • Absence of Internal Controls
  • Related Party transaction not controlled
  • Board not represented by main investors
  • No proper professional Finance Professional

How would a Finance Professional (FP) have prevented the FTX collapse:

While its wishful thinking, it would not be inappropriate to assume that a Finance Professional would have prevented the FTX Collapse (or any such case)

The following measures would certainly have minimized , if not totally avoided the collapse:

  1. Proper regulatory guidelines were in place
  2. Internal Controls with checks and balances were embedded
  3. Empowered CFO was holding responsibility
  4. Good governance was established
  5. Watchdog functions and early warning signals by FP would have helped.

In Lehman Bros case 2008,when Chapter 11 was filed USD 600 Billion assets were jeopardized and the domino effect was felt all over the finance world.

 Some other frauds that may be mentioned are:

 Madoff Investments USD 65 Billion(Pyramid scheme)

Enron USD 74 Billion(falsified Financial Results)

ZZZZ Best Inc USD 100 Million(Pyramid Scheme)

Qwest Comm USD 3 Billion(Inflated Revenues)

Worldcom USD 100 Billion (Overstated Cash Flows)

There will be Frauds so long greed, rogues with dubious integrity are helm of affairs of Corporates and there is degeneration of core values in societies.

However, on the positive side, there would be knowledge warriors in the form of Finance Professionals, who would ward off such challenges, with tenacity and courage. Satyameva Jayate!!

This article was written by " SriKumar Gopinath, Formerly Director with JRSCA Consulting & Advisory Pvt Ltd ,Independent Director (IICA)and managerial roles with Volvo /Tata Motors and many more “

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