FTX
FTX Crypto Exchange Collapse
Estimated impact: $8B+ in customer funds lost; $32B valuation to zero
FTX, valued at $32 billion, collapsed in November 2022 when it was revealed that founder Sam Bankman-Fried had diverted $8 billion in customer funds to sister company Alameda Research. The collapse was triggered by a CoinDesk report revealing Alameda's balance sheet was dominated by FTX's own FTT token. No board oversight, no independent risk management, and a culture of deference to SBF's perceived genius allowed the fraud to persist.
Decision context
Whether investors, partners, and board members should have demanded standard corporate governance controls (independent board, audited financials, segregated customer funds) from a rapidly growing crypto exchange run by a celebrated founder.
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 2021.
“FTX operates with a lean organizational structure optimized for speed. The company does not maintain a formal board of directors, as the founder retains strategic decision-making authority. There is no chief financial officer; financial oversight is handled directly by the founding team. Compliance and risk management functions are embedded within engineering, reflecting our technology-first approach to regulatory engagement.”
Source: FTX Series B investor presentation deck, provided to Sequoia Capital and other investors
Red flags detectable at decision time
- No board of directors, no CFO, and no independent compliance officer at a company handling billions in customer deposits
- Customer funds commingled with proprietary trading operations at sister company Alameda Research
- No audit committee or independent financial oversight — founder personally controlled all treasury functions
- Sequoia invested $214M based on stated "intuition about the founder" rather than governance due diligence
Cognitive biases the platform would have flagged
Hypothetical analysis
A decision intelligence platform would have immediately flagged the absence of basic corporate governance — no board, no CFO, no compliance officer — as a critical structural risk for any entity custodying customer assets. The halo effect surrounding the founder's public profile and effective altruism narrative would have been identified as displacing standard due diligence. The platform would have rated this investment as failing minimum governance thresholds regardless of growth metrics.
Biases present in the decision
Toxic combinations
- Echo Chamber
- Optimism Trap
Reference class base rates
Across all 146 curated case studies in our library:
Lessons learned
- The halo effect from media coverage and political donations created an authority bias that prevented investors from demanding basic governance controls.
- When a single founder controls both a trading platform and a hedge fund trading on that platform with no independent oversight, the structure itself is the risk.
- Anchoring to rapid growth metrics and celebrity endorsements replaced fundamental due diligence on corporate governance and financial controls.
Source: FTX Trading Ltd. Chapter 11 filing, D. Del. Case No. 22-11068; John J. Ray III First Day Declaration (November 2022); U.S. v. Bankman-Fried, S.D.N.Y. 22-cr-673 (SEC Filing)
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