Temasek said it takes its US$275 million (S$377.3 million) losses from FTX seriously, and there are lessons to be learnt from its failed investment in what was once the world’s third-largest crypto exchange. The Singapore sovereign wealth fund admitted to the misplaced judgement of the former chief executive officer (CEO) and co-founder of FTX, Samuel Bankman-Fried, who faces a lawsuit and possible investigation by the Bahamas and US authorities.

Temasek has decided to write down its full investment of US$275 million in FTX, regardless of the outcome of FTX’s bankruptcy protection filing, said Temasek in a statement on Nov 17. FTX filed for Chapter 11 bankruptcy protection in the US on Nov 11. The cost of Temasek’s investment in FTX was 0.09 per cent of its net portfolio value of S$403 billion as of 31 March 2022, Temasek disclosed.

“While this write down of our investment in FTX will not have significant impact on our overall performance, we treat any investment losses seriously and there will be learnings for us from this,” said Temasek.

“Reports have since surfaced that customer assets were mishandled and misused in FTX. If these statements are true, then this amounts to serious misconduct or fraud at FTX. All of this is currently being investigated by the regulators,” Temasek added.

Only 24 hours after filing for Chapter 11 bankruptcy protection on Nov 11, US$477 million was moved out of FTX in a suspected theft, said Elliptic Connect, a provider of crypto compliance solutions with offices in Singapore, London, New York and Tokyo.

“It is apparent from this investment that perhaps our belief in the actions, judgment and leadership of Sam Bankman-Fried, formed from our interactions with him and views expressed in our discussions with others, would appear to have been misplaced,” Temasek admitted.

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The US and Bahamas authorities are discussing the possibility of extraditing the 30-year-old Bankman-Fried, a US citizen, to the US for questioning from the Bahamas, where he is currently located and where FTX was incorporated, reported the Daily Mail, citing three unnamed sources.

On Nov 16, Bankman-Fried tweeted, “My goal – my one goal-is to do right by customers. I’m contributing what I can to doing so. I’m meeting in person with regulators and working with the teams to do what we can for customers. And after that, investors. But first, customers.”

Financial investigators from the Financial Crimes Investigation Branch of the Royal Bahamas Police are working closely with the Bahamas Securities Commission “to investigate if any criminal misconduct occurred” in relation to FTX, said a press release of the Royal Bahamas Police on Nov13.

In the US city of Miami on Nov 15, investors filed a class action lawsuit accusing Bankman-Fried and celebrities including US comedian Larry David and tennis player Naomi Osaka of fraudulently promoting FTX yield-bearing accounts, reported CoinDesk. All the accused are presumed innocent until proven guilty.

At a crypto festival in the Bahamas in April, Bankman-Fried socialized with former US President Bill Clinton, former UK Prime Minister Tony Blair, British actor Orlando Bloom and American singer Katy Perry, reported the Daily Mail.

Bankman-Fried tweeted on Nov 17 Singapore time, “I was on the cover of every magazine, and FTX was the darling of Silicon Valley. We got overconfident and careless.”

A month ago, FTX was a valuable enterprise with US$10 billion to US$15 billion of daily trading volume, roughly US$1 billion of annual revenue and US$40 billion of equity value, he tweeted on Nov 17 Singapore time. “And we were held as paragons of running an effective company.”

“And problems were brewing. Larger than I realized…. Leverage built up – ~$5b of leverage, backed by ~$20b of assets which were…. Well, they had value…. But they had risk,” Bankman-Fried added.

Bankman-Fried resigned from FTX, FTX US, Alameda Research Limited and their subsidiaries on Nov 11, so he has no ongoing role in these companies and does not speak on their behalf, said FTX CEO and chief restructuring officer John Ray on FTX’s official Twitter account on Nov 17 Singapore time.

Ray took over as FTX CEO and Chief Restructuring Officer on Nov 11 when the company filed for bankruptcy protection. He previously headed the bankruptcy proceedings of US energy giant Enron, which filed for bankruptcy in 2001; the biggest US bankruptcy in history. Fraudulent accounting and insider trading were revealed in connection with Enron.

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Temasek’s due diligence on FTX

Temasek invested US$210 million for a stake of about 1 per cent in FTX’s global platform FTX International and invested US$65 million for a stake of about 1.5 per cent in FTX’s US platform FTX US, across two funding rounds from October 2021 to January 2022, said the sovereign wealth fund’s statement.

“Similar to all investments, we conducted an extensive due diligence process on FTX, which took approximately 8 months from February to October 2021. During this time, we reviewed FTX’s audited financial statement, which showed it to be profitable. In addition, our due diligence efforts focused on the associated regulatory risk with crypto financial market service providers, particularly licensing and regulatory compliance (i.e. financial regulations, licensing, anti-money laundering (AML)/ Know Your Customer (KYC), sanctions) and cybersecurity. Advice from external legal and cybersecurity specialists in key jurisdictions was sought, with legal and regulatory review done for the investments,” Temasek explained.

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“Separately, we also gathered qualitative feedback on the company and management team based on interviews with people familiar with the company, including employees, industry participants, and other investors,” Temasek said.

“We take corporate governance seriously, engage the boards and management of our investee companies regularly and hold them accountable for the activities of their companies,” Temasek added.

Toh Han Shih is chief analyst of Headland Intelligence, a Hong Kong risk consulting firm.