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No red flags at FTX despite 8 months of ‘extensive due diligence’ — Temasek

November 17, 2022 Coin Telegraph

Despite eight months of due diligence, investment firm Temasek found no major concerns with FTX’s financials and no sign that the crypto exchange would eventually collapse.

Singapore's state-owned investment firm Temasek revealed despite eight months of due diligence in 2021, it didn't find any significant red flags in FTXs financials before deciding to invest $275 million into the now-bankrupt crypto exchange.

Like many of FTX's more than one million creditors, the Singapore-based firm has been left blindsided by the collapse of FTX and the ongoing fallout, saying in a Nov. 17 post:

"The thesis for our investment in FTX was to invest in a leading digital asset exchange providing us with protocol agnostic and market neutral exposure to crypto markets with a fee income model and no trading or balance sheet risk."

Before the firm decided to invest $210 million for a stake of 1% in FTX International and $65 million for a minority 1.5% stake in its United States-based entity FTX US across two funding rounds, it claims to have conducted "extensive due diligence" from Feb. to Oct. 2021.

According to Temasek it reviewed FTX's audited financial statements, investigated the associated regulatory risk with crypto financial market service providers, and sought advice from external legal and cybersecurity specialists, with a legal and regulatory review undertaken for the investments.

As another precaution, the firm said it interviewed people familiar with FTX, including employees, industry participants, and other investors.

"We recognize that while our due diligence processes may mitigate certain risks, it is not practicable to eliminate all risks," the firm said.

"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."

According to Temasek, it estimates its investment in FTX was 0.09% of its portfolio value of more than $293 billion, and none of the disclosed investments involves crypto, despite rumors to the contrary, the firm says it has “no direct exposure in cryptocurrencies."

"We continue to recognize the potential of blockchain applications and decentralized technologies to transform sectors and create a more connected world. But recent events have demonstrated what we have identified previously – the nascency of the blockchain and crypto industry and the innumerable opportunities as well as significant risks involved.”

Paradigm co-founder feels ‘deep regret’ investing in SBF and FTX

November 16, 2022 Coin Telegraph

Alameda

Some challenged whether the multi-billion dollar venture capital firm did enough due diligence on FTX prior to investment.

The co-founder of asset management firm Paradigm says they feel “deep regret” for having invested in FTX amid recent revelations involving FTX, Alameda Research, and Sam Bankman-Fried.

In a Twitter post on Nov. 15, Matt Huang, co-founder and managing partner of Paradigm said the firm is “shocked” by the revelations surrounding the two companies and their founder, adding:

“We feel deep regret for having invested in a founder and company who ultimately did not align with crypto’s values and who have done enormous damage to the ecosystem.”

Matt Huang, Managing Partner and Co-Founder of Paradigm Source: Paradigm

Paradigm is a crypto and Web3-focused venture capital firm based in San Francisco. In April reports suggested the firm’s assets under management totaled approximately $13.2 billion.

In Nov. 2021, the firm announced a $2.5 billion New Venture Fund, which dethroned Andreesen Horowitz’s (a16z) as the largest venture fund in crypto.

The firm’s website currently lists FTX and FTX.US in its portfolio. Reports suggest its investment in the exchange is around the $278 million mark.

Huang said that Paradigm’s equity investment in FTX only constituted “a small part of our total assets,” adding that it has now written its FTX investment down to $0.

Facts are still coming to light, and there will be many lessons to learn. We feel deep regret for having invested in a founder and company who ultimately did not align with crypto’s values and who have done enormous damage to the ecosystem.
— Matt Huang (@matthuang) November 15, 2022

He also assured that the firm has never traded on FTX or has ever invested in tokens linked to the exchange, including FTX Token (FTT), Serum token (SRM), Maps.ME Token (MAPS), or the Oxygen Protocol token (OXY).

“We never traded on FTX and did not have any assets on the exchange. We have never been investors in related tokens such as FTT, SRM, MAPS, or OXY.”

Since posting the tweet, a number of Twitter users challenged whether the firm did enough due diligence prior to investing in FTX.

you guys made a bad bet. you didn’t do your due diligence. and your endorsement led others to believe in & support the fraud that was SBF/FTX

that was very bad, and i hope you’ll strive to do better

but i respect taking the L and publicly owning up to it. that is the right move
— DCinvestor.eth ⌐◨-◨ (@iamDCinvestor) November 15, 2022

Speaking to Cointelegraph, CK Zheng, co-founder of digital assets hedge fund ZX Squared Capital reflected that in hindsight, many venture capital firms may not have done the proper due diligence on FTX and its executive team, commenting:

“They don’t have a very good governance process, don’t have a board. It’s basically a one-man show.”

“I’m sure when a young company starts to build the company with sophisticated technology [...] I can see how things can go bad quickly if they don't have a good understanding of the technology married with finance.”

“Obviously, they’re smart in one aspect, but they’re running a $32 billion company is very different than, you know, when you manage a small company,” he added.

Investors to have recently marked down their FTX investments include Sequoia Capital, which wrote off its roughly $210 million investment on Nov. 10, Ontario Teachers’ Pension Plan, which invested $95 million in the crypto exchange, and SoftBank Group Corp., which is expected to write down a nearly $100 million investment.

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