Personal Wealth Management / Expert Commentary

Ken Fisher, on How to Avoid Another FTX

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher shares his thoughts and a key lesson from the bankruptcy of former cryptocurrency exchange, FTX. Ken says most investors won’t get their money back from FTX because most of it went out the back door—similar to other high-profile financial scandals including Bernie Madoff and Allen Stanford—because FTX made the decisions and had custody of client assets.

While the courts will decide whether FTX’s fallout was the result of criminal actions or hapless mistakes, Ken thinks there is a simple but critical lesson for investors. As Ken discussed in his 2009 book, How to Smell a Rat, investors can avoid most financial scandals by entrusting their assets to managers that separate the financial decision makers from those holding the money.

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Ken Fisher: Whenever there's a big thing like the crypto FTX blow up, or others that are like that, particularly big and huge, you get all kind of people looking at all kinds of stuff for logical reasons, because they like to parse all the tea leaves as fine as they can that really is unimportant to the central thrust of things.

Ken Fisher: I'm just going to say that the biggest thing that most people are concerned about, in terms of their own money is, had they put money there? Did they lose it?

How much will they get back?

Will they get anything back?

And the answer is, most of them won't get anything back, or not very much, to the extent that they may. And why?

Because it all went out the back door. Basically, the entity itself ends

up being effectively bankrupt.

And in that, there's a really simple lesson, and I wrote about this in my how to Smell A Rat book.

Ken Fisher: It's the most important single trick, although that book has got a number of others in them, about how to avoid this kind of stuff.

But the big one, the simple one, the easy one, is don't ever give your money to a place that has the ability to make decisions.

And in making those decisions, as Sam Bankman-Fried did, take the money out the back door.

Now, I am not saying I just want to be real clear.

I'm not saying that what he did is or is not criminal.

I don't have a clue.

The courts will adjudicate that, as they should.

You and I shouldn't, the media

shouldn't, although the media may try.

Ken Fisher: The fact of the matter is that's what the court system is about.

I'm not saying that he may have just been hapless and doing what I would consider, in retrospect, stupid stuff, and there's a good chance of that.

Maybe he was doing things that are blatantly criminal, we'll find out.

But the point is, you avoid either simply by not putting money in a place where the decision maker, FTX can take the money out the back door.

It's really easy, separate decision making from the custody of the assets, and that doesn't happen.

That's my story.

Ken Fisher: I hope you can keep it that simple, because if you can keep it that simple, you yourself won't suffer the victim of that classic Ponzi schemes, any of the things like Bernie Madoff or R. Alan Stanford, any of that stuff.

And I hope that works well for you.

It's really simple. Keep it simple.

Don't get distracted by all the nuances that are going to want to be thrown at you over the course of the next couple of years, and have been for the last couple of months.

Thank you.

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