Temasek admits it could have been defrauded by FTX

Photo credit: Temasek

Temasek Holdings, the Singapore government-owned investment firm, has shed more light on the circumstances leading up to its investment in crypto exchange FTX via an update to its original statement released over the weekend.

Between October 2021 and January 2022, Temasek invested a total of US$275 million in FTX International and FTX US.

On November 17, Temasek announced that it would write off its entire investment in the FTX, which constituted 0.09% of its net portfolio valued at S$403 billion (US$293 billion).

Former Temasek CEO Ho Ching also weighed in via Facebook, arguing that some of the firm’s best investments “were made by being contrarian.”

The firm could take this approach because “it has its own balance sheet and can think long-term,” she wrote on November 26. “But FTX is not a market volatility issue, and is a reminder that good intentions are not good enough,” she added.

Ho is currently the chairman of Temasek Trust, the firm’s philanthropic arm, and is also the wife of Lee Hsien Loong, Singapore’s prime minister. She stepped down from Temasek on October 1, 2021 after serving as CEO since 2004.

It is unclear if Ho was involved in Temasek’s decision to invest in FTX, which was announced on October 21, 2021, just three weeks after her retirement.

More details on pre-investment due diligence

New details from Temasek’s update reveal that the rationale for its FTX investment was to back a leading digital asset exchange that would provide market-neutral exposure to crypto markets. Another criteria was that the exchange needed to rely on a fee income model with no trading or balance sheet risk.

While the firm clarified that it backed FTX to invest in market infrastructure rather than to obtain exposure to cryptocurrencies, Temasek did not reveal if it was considering investments in other cryptocurrency exchanges or infrastructure and service providers.

Temasek maintained that it had reviewed audited financial statements from FTX International showing that the company was performing well and was profitable.

The investment firm also said that it had inquired about the relationship, preferential treatment, and separation between Alameda Research and FTX when it conducted multiple rounds of due diligence and was “given appropriate confirmations that were contractually binding.” However, Temasek did not reveal who it spoke with during its pre-investment engagement with FTX.

Temasek’s confidence in FTX following its due diligence stands in stark contrast with statements made by John Ray III, who was appointed CEO after Sam Bankman-Fried resigned. The new chief executive condemned FTX for its “unprecedented and complete failure of corporate controls.”

“Because due diligence is conducted from an outside-in perspective and access to information is limited, there is the risk that a well-concealed fraud by a small group of people, as reports on FTX suggest, can go on undetected,” Temasek said in its statement.

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