A Handful of Simple Rules Might Have Prevented FTX’s Demise

In retrospect, there were red flags everywhere. Sam Bankman-Fried’s FTX crypto empire was a tangled web of offshore companies rife with conflicts. It mixed client money with its own. It had little or no corporate governance. There were few financial disclosures. But there were celebrities—lots of celebrities.

As prosecutors and creditors circle, everyone seems to be asking a version of the same two questions: How could this have been allowed to happen? And what can be done to keep it from happening again?

The FTX flop has driven home that a large chunk of the digital-asset industry thrives in ...