Singapore’s Temasek has cut compensation for staff who were responsible for the investment in now bankrupt crypto exchange FTX – even as the company ruled out any “misconduct.”

Key Highlights: Temasek’s Response to FTX Investment Loss

  • Internal Review: Temasek’s investigation found no misconduct by the investment team responsible for the $275 million FTX investment.
  • Compensation Cuts: Despite no misconduct, staff involved in the FTX investment faced pay reductions to account for the oversight.
  • Minimal Portfolio Impact: The FTX investment loss was less than 0.1% of Temasek’s total portfolio valued at $304 billion.
  • Startup Risks: Temasek emphasized the inherent risks in startup investments, even as they pursue new sectors and technologies.
  • FTX Fraud Allegations: FTX’s fraudulent activities were hidden from investors, contributing to the significant loss.
  • Reputation Management: Temasek expressed disappointment in the investment outcome and its impact on their reputation.
  • Ongoing Vigilance: The state fund remains committed to understanding and investing in emerging technologies despite the setback.

The Internal Investigation of the FTX

The state fund had launched an internal investigation into the investment six months back and eventually wrote down the $275 million investment.

In a note published on the company website, Temasek chairman Lim Boon Heng said the independent team submitted the internal review of the investment to the company’s board.

He added, “Although there was no misconduct by the investment team in reaching their investment recommendation, the investment team and senior management, who are ultimately responsible for investment decisions made, took collective accountability and had their compensation reduced.”

Notably, startup investments are inherently riskier than listed companies – even as the upside potential is also higher.

Amid the slump in unlisted startups, most venture capital funds have booked massive losses with SoftBank’s Vision Funds booking a loss of $32 billion in the fiscal year that ended in March.

Temasek meanwhile defended its startup investments and said, “While there are inherent risks whenever we invest, we believe that we have to invest in new sectors and emerging technologies to understand how these areas may impact the business and financial models of our existing portfolio, and whether they would be drivers of future value in an ever-changing world.”

Temasek Cuts Pay of Employees Responsible for FTX Investment

While Temasek did not specify the amount of employee compensation it has cut, the company’s investment in FTX was $275 million – making it the largest investor.

Temasek’s investment in FTX was however less than 0.1% of the fund’s total portfolio which was valued at $304 billion at the end of March.

Last year, Temasek said that its due diligence of FTX “showed it to be profitable.”

In his note now, Heng said, “With FTX, as alleged by prosecutors and as admitted by key executives at FTX and its affiliates, there was fraudulent conduct intentionally hidden from investors, including Temasek.”

He however admitted, “Nevertheless, we are disappointed with the outcome of our investment and the negative impact on our reputation.”

The FTX fiasco was among the factors that spooked crypto investors last year. The market has meanwhile rebounded this year with bitcoin now trading at around $28,000.

FTX Fiasco: The IRS is Claiming $44 Billion

Incidentally, FTX helped bail out several small crypto firms before it itself went bankrupt. The fiasco sent shock waves across markets. Regulators have also since tightened the regulations.

Notably, the United States Department of Treasury and Internal Revenue Service (IRS) filed claims amounting to a whopping $44 billion against FTX and its subsidiaries.

FTX’s founder Sam Bankman-Fried who’s popularly known by the initials “SBF” has filed to dismiss 10 of the 13 charges against him.

Earlier this month, the Economic and Financial Affairs Council of the European Union approved the world’s first set of comprehensive crypto rules which makes exchanges liable if they lose customer funds.

In the US, the Department of Justice is cracking down on crypto exchanges which either indulge or abet in criminal activity.

Most market participants meanwhile agree that action against bad actors would eventually lead to healthier crypto markets.

Wrapping Up: What We Can Learn from the FTX Investment Loss

Temasek’s response to the FTX investment loss highlights the inherent risks in venture capital, especially in volatile sectors like cryptocurrency.

By reducing compensation for those responsible, Temasek demonstrates accountability and a commitment to prudent investment practices. As the industry evolves, ongoing due diligence and strategic oversight remain crucial for mitigating risks and safeguarding investments.

Before you go, check out our 5 recommendations for staying safe when investing:

  1. Ensure Due Diligence: Conduct thorough due diligence before making significant investments.
  2. Accept Accountability: Hold teams accountable for investment decisions to maintain integrity and trust.
  3. Learn from Failures: Use investment failures as learning opportunities to improve future decision-making.
  4. Maintain Transparency: Communicate transparently with stakeholders about investment outcomes and actions taken.
  5. Diversify Investments: Diversify your investment portfolio to mitigate risks associated with high-risk ventures.

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