Amid ongoing investigations into defunct cryptocurrency exchange FTX, the Commodity Futures Trading Commission (CFTC) questions the due diligence performed by institutional investors and their liability regarding the loss of user funds. .
CFTC Commissioner Christy Goldsmith Romero said that venture capitalists who had to reduce their millions of dollars in investments to near zero raise “serious questions” about the due diligence conducted over the past year. speech to Bloomberg.
He raised concerns about FTX CEO John Ray’s revelations in court about having no record of or control over the exchange’s finances.
I’m glad Mr. Ray is finally paying lip service to getting the exchange back on after months of crushing such efforts!
I’m still waiting for him to finally admit that FTX US is creditworthy and pay customers back…https://t.co/XjcyYFsoU0https://t.co/SdvMIMXQ5K
—SBF (@SBF_FTX) January 19, 2023
The lack of record keeping coupled with “an auditor no one has ever heard of” forces the CFTC to ask questions about the mindset of institutional investors. In this regard, Romero asked a series of questions:
“How is that possible? So are they turning a blind eye? Were they simply distracted by this promise of innovation?
FTX founder and former CEO Sam Bankman-Fried used trust as a marketing technique to gain the trust of investors. However, Romero echoed current investor sentiment, saying “we now know that’s not true.”
As a result, she believed that 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 (VC backers) from really paying attention to the due diligence and the facts that they were uncovering?” Romero asked as he concluded the topic in question.
Related: FTX reset could fail due to long-broken user trust, observers say
Shark Tank star and investor Kevin O’Leary, who once supported FTX, has warned of the potential downfall of unregulated crypto exchanges. He stated:
“If you ask me is there going to be another collapse to zero? Absolutely. One hundred percent it will happen, and it will continue to happen over and over and over again.”
As Cointelegraph previously reported, according to a report by the National Bureau of Economic Research, up to 70% of trading volume on unregulated exchanges is wash trading.
