FTX VCs Subject to Serious Questions on Due Diligence –

FTX VCs Subject to “Serious Questions” on Due Diligence – CFTC Commissioner – Cointelegraph

Amid ongoing investigations surrounding defunct crypto exchange FTX, the Commodity Futures Trading Commission (CFTC) is questioning the due diligence exercised by institutional investors and their responsibility for the loss of user funds.

CFTC Commissioner Christy Goldsmith Romero told Bloomberg that VCs, which have had to write off their multi-million dollar investments to near zero, are raising “serious questions” about the due diligence conducted over the past year.

FTX VCs Subject to Serious Questions on Due Diligence –CFTC Commissioner Christy Goldsmith Romero questions the VCs that once backed FTX. Source: Bloomberg

She raised concerns about FTX CEO John Ray’s revelations in court that he had no records and controls over the exchange’s finances.

The lack of records linked to “an auditor no one has heard of” is forcing the CFTC to ask questions about the mindset of institutional investors. In this context, Romero asked a number of questions:

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

FTX founder and former CEO Sam Bankman-Fried used trust as a marketing technique to earn investor trust. Romero, however, echoed current investor sentiment, stating, “We now know that’s not true.”

As a result, she believed the VCs backing FTX were ignoring the red flags when it came to due diligence and further questioned her involvement.

“So were there some conflicts that prevented them (VC supporters) from really paying attention to the duty of care and the facts they uncovered?” Romero asked while closing the topic at hand.

Related: FTX’s reboot could stall due to long-broken user trust, observers say

Shark tank star and investor Kevin O’Leary, who once backed FTX, warned of the possible demise of unregulated crypto exchanges. He stated:

“If you ask me, will there be another meltdown to zero? Absolutely. It’s going to happen 100 percent, and it’s going to happen over and over 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.