In the midst of an ongoing investigation into the defunct crypto exchange FTX, the Commodity Futures Trading Commission (CFTC) is questioning the due diligence done by institutional investors and their responsibility for losing user funds.
CFTC Commissioner Christy Goldsmith Romero said that VCs having to write down investments in millions of dollars to almost zero raises “serious questions” about the due diligence that was done last year, he told Bloomberg.
He raised concerns about FTX CEO John Ray’s revelations in court about his lack of records and control over the exchange’s finances.
I’m glad Mr. Ray finally paid lip service to turn the exchange back on after months of squashing such efforts!
I’m still waiting for them to finally recognize FTX US as solvent and give their customers back their money …https://t.co/XjcyYFsoU0https://t.co/SdvMIMXQ5K
— SBF (@SBF_FTX) January 19, 2023
The lack of records coupled with “never heard of auditors” forced the CFTC to question the mindset of institutional investors. In this regard, Romero asks several questions:
“How can you? So do they turn a blind eye? Are they just confused by this promise of innovation?”
FTX founder and former CEO Sam Bankman-Fried used trust as a marketing technique to gain investor confidence. However, Romero echoed current investor sentiment when he stated “Now we know that’s not true.”
As a result, he believes that VCs backing FTX ignore red flags when they should be scrutinized, further questioning their involvement.
“So there is some kind of conflict that prevents them (the VC supporters) from ignoring their persistence and the facts that are revealed?” asked Romero as he summed up the topic at hand.
related: FTX’s resurgence could falter as long-standing user confidence has been eroded, observers say
Shark Tank star and investor Kevin O’Leary, who once backed FTX, warned against unregulated crypto exchanges. He stated:
“If you ask if there will be another crisis to zero? Absolutely. One hundred percent it will happen, and it will continue to happen, and 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 trade laundering.