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Source: Сointеlеgrаph

Amid ongoing investigations surrounding the defunct cryptocurrency exchange FTX, the Commodity Futures Trading Commission (CFTC) is questioning the due diligence carried out by institutional investors and their liability regarding the loss of user funds.

CFTC commissioner Christy Goldsmith Romero said venture capitalists, who have had to write down their millions of dollars of investments to near zero, are raising “serious questions” about last year’s due diligence, speaking to Bloomberg.

CFTC commissioner Christy Goldsmith Romero is questioning the venture capitalists who once supported FTX. Source: Bloomberg.

She expressed concern about claims by FTX CEO John Ray in court that there was no record and no control over the exchange’s financial performance.

The lack of accounting, 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 this possible? So they turn 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 gain investor confidence. Romero, however, 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 casting doubt on their involvement.

“So, were there any conflicts that prevented them (the VC backers) from really paying attention to the due diligence and the facts they disclosed?” Romero asked, ending the conversation.

Related: FTX reboot could fail due to long-damaged user trust, watchers say

Shark Tank star and investor Kevin O’Leary, who once backed FTX, has warned of a potential downfall for unregulated crypto exchanges. He decreed:

“If you are asking me, will there be another drop to zero? Absolutely. One hundred percent it will happen, and it will happen again and again and again.”

As previously reported, based on a report from the National Bureau of Economic Research, up to 70% of trading volume on unregulated exchanges is fictitious transactions.

Source: Сointеlеgrаph

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