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Ethical Incident by FTX

FTX trading company has been one of the leading cryptocurrency companies globally. Having been founded in 2019, the company experienced tremendous growth in its asset value till its bankruptcy in 2019. Part of the issues that led to its bankruptcy were ethical related. Specifically, lack of transparency was the primary ethical concern that led to its collapse. This problem resulted due to the CEO of the company, Bankman Friedman, failing to reveal the company’s actual state in terms of assets and whether they were adequate to fulfil its current liabilities (Cohen & Jacob, 2022). Bankman often revealed to the FTT token investors that their investments were safe and the company FTX was financially sound, only for them to find out through a balance sheet leakage publication by coin desk that the company has used the investor’s funds to run another company called Alameda research. Bankman kept this state of affairs secret from the investors. Investors were worried about their deposits and felt they could no longer trust the company.

The immediate response from the company was to reassure the public and the trading investors that their assets were safe. The CEO, Bankman, made several media briefings to ensure that the issue did not get out of hand. However, the briefings were mainly done on the company’s Twitter accounts. FTX investors interpreted this as a cowardly move considering that FTX was the largest crypto trading company. Additionally, the company sought to increase its liquidity status by seeking a sell-off to Binance (Cohen & Jacob, 2022). Binance CEO Changpeng Zhao agreed to the acquisition plans. However, the situation quickly went public, and once the United States took over the investigations, Binance backed out and was no longer interested in acquiring FTX. Therefore, the immediate response by the company executives was not futile since it did not increase public confidence, nor did it stop the situation from deteriorating further.

The lack of transparency by FTX had negative consequences for the company and its investors. One of the dire consequences is that a vast majority of the investors lost their assets deposits. The company balance sheet revealed that the company had a negative 8 billion balance, something that the CEO should have explained how they would acquire their funds back. Another consequence is that it led to the bankruptcy of the company. When the transparency issues became public, investors quickly started withdrawing their funds from the company leading to its bankruptcy since they had already invested part of the customer deposits in Alameda. The lack of diversification in assets investments in Alameda and FTX further increased the bankruptcy. Another notable effect of the transparency issues at FTX is that it negatively affected traditional assets like Bitcoins and Ethereum (Vidal et al., 2023). Investors across the cryptocurrency markets globally slowed down on purchasing these assets due to extreme fear and lack of trust in crypto trading companies. Slowed-down investor confidence is still prevalent today despite it being over eight months since the FTX collapse due to ethical issues related to transparency.

Several insights can be derived from FTX concerning professional ethics. First, I learnt that as the CEO of the company, it is very vital that one takes ethics seriously and is personally responsible. When FTX finally collapsed due to ethical issues related to transparency, the CEO was held personally accountable and was indicated on accounts of having known that he was defrauding the trading investors. Hence, business leaders must take matters of professional ethics seriously and abide by the stated guidelines. Secondly, I learnt that companies have a professional, ethical duty to uphold to their stakeholders. Noncompliance with their duty to stakeholders amounts to a lack of professional ethics, negatively affecting the company in the long run (Arner et al., 2023). In the case of FTX, the company should only have used the FTT investor’s funds to reinvest in Alameda research if it was transparent enough to disclose to the investors. Thirdly, I learnt that professional ethics is crucial in maintaining a good reputation. In the case of FTX, a lack of professional ethics led to a negative reputational impact. The investors quickly withdrew their remaining assets, negatively affecting the global crypto market. Investors’ confidence in crypto assets declined and has remained low to date.

In conclusion, lack of transparency was the main ethical issue facing the FTX trading company. Despite the company’s tremendous growth over the years in investor deposits, it collapsed in 2022. Amid the collapse, the company executives’ efforts to salvage the company included boosting investors’ confidence through media briefings and increasing its liquidity by selling it off to Binance. However, these actions were in futility. The consequential effects of its lack of transparency and ethical issues included loss of investors’ funds, company collapse due to bankruptcy and negative investor confidence even in other traditional assets. Business leaders must value professional ethics by upholding their ethical duty to stakeholders.


Arner, D. W., Zetzsche, D. A., Buckley, R. P., & Kirkwood, J. M. (2023). The Financialization of Crypto: Lessons from FTX and the Crypto Winter of 2022-2023. Available at SSRN 4372516.

Cohen, M., & Jacob, A. (2022). The Fall of FTX and How Transparent Accounting Can Restore Crypto’s Future. TaxBit.

Vidal-Tomás, D., Briola, A., & Aste, T. (2023). FTX’s downfall and Binance’s consolidation: the fragility of Centralized Digital Finance. arXiv preprint arXiv:2302.11371.


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