a$.[10$ marks$]$

Never seen 'such a complete failure' of corporate controls, says new FTX CEO who also oversaw Enron bankruptcy

Manateremell

$f$ in o

generawssawamces$-$

geasmass

Until recently, cryptocurrency exchange FTX was the second largest crypto exchange in the world, after Binance. It had risen to prominence with support from major investors, such as Sequoia, BlackRock, Temasek, and OTPP. At one time, it was worth $$32$ billion and spruiked by celebrities, such as footballer Tom Brady. FTX$\text{'}$s then CEO was the second largest donor to the democrats. In November $2022,$ FTX filed bankruptcy with users of the exchange set to lose large amounts of money. In the bankruptcy petition for FTX over the FTX collapse, the new CEO shredded FTX$,$ Alameda, and FTX$\text{'}$s former management team. Tellingly, he states: "Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here". Following the collapse of FTX$,$ investigation further revealed that at least $$1$ billion of customer funds vanished from collapsed crypto exchange FTX$.$ In addition, FTX founder Bankman$-$Fried secretly moved $$10$ billion in funds to trading firm Alameda for his personal expenses with the executives setting up bookkeeping "back door" that thwarted red flags.

It is evident from the collapse of FTX$,$ Enron, Tyco International, Nikola etc that agency problems are inevitable. That is$,$ we can never expect managers to give $100\%$ weight to shar'cholders' interests and none to their own.

i$.$ Why not?

$[3$ marks$]$

ii$.$ Discuss the mechanisms that can be adopted by firms to keep agency problems under control

$[4$ marks$]$

iii. Andrei Shleifer and Robert Vishny define corporate governance as "the ways in which suppliers of finance assure themselves of getting a return on their investment". This definition assumes that the firm's primary objective is to maximize shareholder value. What is your take on the above statement? Do you think maximizing sharebolder value should be the primary goal of a firm?

$[4$ marks$]$