FTX
FTX Cryptocurrency Exchange Collapse
Estimated impact: $32B
FTX, valued at $32 billion, collapsed in days after it was revealed that customer deposits had been commingled with its sister trading firm Alameda Research. The company operated without a board of directors, and investors performed minimal due diligence, deferring to founder Sam Bankman-Fried's perceived authority.
Decision context
Whether investors, auditors, and regulators should have demanded standard corporate governance structures, independent boards, and segregation of customer funds before extending trust and capital.
The analysis below was produced from the pre-decision document only — no hindsight. This is what the platform would have surfaced if it had been running in 2022-01-31.
“FTX raised $400M at a $32B valuation from investors including Sequoia, Paradigm, SoftBank, Temasek, and the Ontario Teachers' Pension Plan. The company had no board of directors. CEO Sam Bankman-Fried was the sole signatory on corporate actions. No independent audit of the relationship between FTX and sister trading firm Alameda Research had been performed. Sequoia's published profile described SBF playing League of Legends during the pitch meeting as a positive trait.”
Source: FTX Series C press release; Sequoia Capital published profile of Sam Bankman-Fried (archived, deleted November 2022)
Red flags detectable at decision time
- No board of directors at a company holding billions of dollars in customer assets
- Founder-controlled holding companies commingling corporate and personal funds
- No segregation of customer crypto deposits from sister trading firm balance sheet
- Unaudited relationship between FTX exchange and Alameda Research
- Sequoia published profile celebrating founder attention-splitting as a virtue
Cognitive biases the platform would have flagged
Hypothetical analysis
DI would flag the absence of a functioning board of directors at a $32B financial-services company as a binary governance failure. The Sequoia profile's framing of founder-as-genius as substitute for institutional due diligence is a textbook halo-effect signal. Customer funds commingling is a bright-line fiduciary red flag — no bias-adjusted valuation could survive basic audit-trail verification of customer-asset segregation.
Biases present in the decision
Toxic combinations
- Yes Committee
- Golden Child
Reference class base rates
Across all 135 curated case studies in our library:
Lessons learned
- Authority bias toward charismatic founders can cause sophisticated investors to abandon basic due diligence.
- The absence of a functioning board of directors is a critical governance red flag regardless of a company's valuation.
- Commingling customer funds with proprietary trading is a fundamental violation of fiduciary duty that no amount of innovation justifies.
Source: FTX Debtors' First Interim Report, Chapter 11 Case No. 22-11068 (2023); SEC v. Samuel Bankman-Fried complaint (SEC Filing)
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