CFTC Commissioner Raises Serious Concerns Regarding the Due Diligence Performed by FTX Venture Capitalists

As the cryptocurrency industry evolves, so does the level of scrutiny regulators place on its participants. This issue has become particularly apparent in the case of FTX.

This now-defunct cryptocurrency exchange has recently come under fire from the US Commodity Futures Trading Commission (CFTC). The action is for its lack of record-keeping and questionable use of an auditor “no one has ever heard of.”

Questions About The Scrutiny And Accountability By FTX Institutional Investors

The CFTC is questioning the level of scrutiny and accountability shown by institutional investors following the collapse of the FTX crypto exchange, especially concerning the significant losses suffered by users.

Commissioner Christy Goldsmith Romero expressed serious doubts to Bloomberg about VCs’ competence, who have had to write down their investments to near zero. She pointed out inadequacies in their diligence over the past year.

She expressed her apprehensions in the light of John Ray, the CEO of FTX, admitting in court to not having any documents or supervision concerning the money matters of the exchange.

Romero questioned how investors have reacted to this situation: “How is that possible? So, do they ignore it? Did the supposed innovation deceive them?”

Romero raised concerns that the VCs who backed FTX might not have conducted adequate due diligence. She indicated that Sam Bankman-Fried had used trust as a marketing ploy to gain investor trust.

She pondered whether any conflicts of interest had impeded VCs from paying attention to the facts. Meanwhile, Kevin O’Leary, famous Shark Tank panelist and an investor in FTX, points out that there will be “absolutely” more cases of a “meltdown to zero” that will reoccur “over and over and over again.”

The statement from the CFTC drew mixed reactions, with some in the industry praising the Commission for its proactive approach regarding the issues surrounding crypto exchanges. In contrast, others argued that it was an overreach of its authority.

Investors Must Assess Risks

Nevertheless, the statement raises concerns about the mindset of FTX’s institutional investors, particularly given that the exchange’s lack of record-keeping puts it out of compliance with the Commission’s rules and regulations.

As such, these investors must take the time to assess the risks associated with their investments in FTX and ensure that they have conducted appropriate due diligence. Ultimately, the CFTC’s statement serves as a warning to institutional investors that they need to be more vigilant when it comes to assessing the risks associated with their cryptocurrency investments.

Failure to do so could leave them liable for regulatory violations and potential financial losses in case of a significant breach or other incidents. As such, institutional investors must consider the CFTC’s statement and take the necessary steps.

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