Accounting firm BDO found nothing amiss in controversial FTX Europe deal

Accountancy group BDO found nothing amiss in FTX’s $376 million swoop to acquire Digital Assets AG (DAAG), the Swiss startup that was later rebranded FTX Europe.  

In excerpts of a lengthy report reviewed by The Block, published in April 2022 as part of the acquisition process, BDO wrote that the deal “reasonably represents fair value.” That contrasts sharply with the view FTX Trading took in a recent complaint.

FTX Trading, under the management of bankruptcy veteran John Ray, has filed a flurry of lawsuits in recent weeks as part of a campaign to claw back funds it claims were distributed with reckless abandon while the failed exchange business was still under the control of alleged fraudster Sam Bankman-Fried. 

In one recent example, FTX Trading sued insiders at the collapsed crypto exchange’s European unit — claiming former CEO Bankman-Fried had significantly overpaid for it, in part because of his allegedly close ties with DAAG executives Patrick Gruhn, Robin Matzke and Brandon Williams, who are the subjects of the complaint. 

The bankrupt crypto group’s new management framed the deal as one of many “dubious investments” that Bankman-Fried and lieutenants Caroline Ellison, Gary Wang and Nishad Singh financed using misappropriated funds. 

Conversely, BDO’s report suggests it was “consummated in an arm’s length basis by knowledgeable, unrelated parties.” 

Little more than a business plan

A spokesperson for FTX Trading said of BDO’s assessment, “The April 2022 ‘valuation report’ simply assumes that the purchase price reflected fair value because it was ‘arms-length,’ and one cannot, of course, presume the fairness of a fraudulent transaction from the fact that it took place.”

They also reiterated some of the key points of the complaint, adding that FTX Trading has filed suit to recover more than $320 million “wrongly paid to the defendants by FTX at the direction of Sam Bankman-Fried to acquire a company, the purported value of which came from a license obtained after the transaction for just over $2 million.” That figure refers to the €2 million that Matzke and Gruhn paid to acquire K-DNA Financial Services Ltd., a licensed Cyprus investment firm.

Besides that license, FTX Trading alleges that Bankman-Fried and his colleagues paid more than $376 million for little more than “a ‘business plan.’”

BDO didn’t respond to multiple requests for comment about the assessment. DAAG declined to comment. 

Auditors flee crypto

The lack of due diligence performed by investors and acquirers in the crypto sector has come under close scrutiny following the collapse of FTX and a host of other heavily hyped startups last year. 

Many deep-pocketed investors, including the likes of Sequoia Capital and Temasek, were forced to write off hundreds of millions of dollars that they had invested in FTX. Andrew Wingfield, a partner at Proskauer Rose, the law firm, said the downfall of Bankman-Fried’s empire “serves as a powerful lesson for investors in the tech sector, underscoring the significance of conducting thorough due diligence before making financial commitments.” 

Yet fewer and fewer auditors appear willing to operate in the space.

In December last year, shortly after the collapse of Bankman-Fried’s empire, The Wall Street Journal reported that BDO was reconsidering its work for crypto companies. The company had signed off on reserves reports for Tether, the stablecoin issuer, not long before. 

BDO later walked away from a potential gig auditing crypto venture fund Shima Capital in March 2023 after a policy change that meant it fell outside the accountancy firm’s risk parameters.

French auditing firm Mazars, which had previously helped exchange giant Binance produce controversial proof-of-reserves reports, paused all work with crypto clients in December last year. 

Accounting firm Armanino, which audited FTX US, closed its crypto audit practice in December 2022. Members of its team spun out and started their own crypto auditing firm called The Network Firm, which has worked with TrueUSD (TUSD) and others.