FTX VCs face ‘serious questions’ around due diligence – CFTC commissioner

Amid ongoing investigations surrounding defunct crypto exchange FTX, the Commodity Futures Trading Commission (CFTC) questions the due diligence performed by institutional investors and their accountability for the loss of customer funds.

CFTC Commissioner Christy Goldsmith-Romero said VCs who had to write down millions of dollars in their investments to almost zero raise “serious questions” about the due diligence done over the past year. to speak to Bloomberg.

CFTC Commissioner Christy Goldsmith Romero is questioning VCs who once backed FTX. Source: Bloomberg

He expressed concern in court about FTX CEO John Ray’s revelations about the lack of records and controls over the exchange’s financial affairs.

The lack of recordkeeping and the “no one ever heard of an auditor” force the CFTC to ask questions about the mindset of institutional investors. In this regard, Romero asked several questions:

“How is that possible? So did they turn a blind eye to it? Were they just distracted by this promise of innovation?

Founder and former CEO of FTX Sam Banksman Freud Used trust as a marketing technique to gain the trust of investors. However, Romero echoed the sentiments of existing investors, saying “we now know that’s not true.”

As a result, he believed the VCs backing FTX ignored red flags when it came to due diligence, further questioning their involvement.

“So were there some conflicts that prevented them (the VC backers) from really doing their due diligence and paying attention to the facts that they were uncovering?” Romero asked, keeping the subject in hand.

Related: Analysts say the FTX reboot could be down due to long-broken consumer confidence.

Shark Tank star and investor Kevin O’Leary, who once backed FTX, warned against the potential downfall of unregulated crypto exchanges. He stated:

“If you’re asking me if there’s going to be another meltdown at zero? Absolutely. One hundred percent it will, and it will happen again and again.”

As Cointelegraph previously reported, based on a report by the National Bureau of Economic Research, Up to 70% of trading volume on unregulated exchanges is wash trading..