FTX’s Venture Capital Backers Face ‘Serious Questions,’ CFTC Official Says

(Bloomberg) — The failure of Sam Bankman-Fried’s FTX crypto empire raises “serious questions” about how well venture capitalists and money managers scrutinized his operations before investing client funds, a Commodity Futures Trading Commission official said.

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“What kind of due diligence did they conduct?” Commissioner Christy Goldsmith Romero said Friday in a Bloomberg Television interview. “Why did they turn a blind eye to what should have been really flashing red lights?”

If a fund entrusts millions of dollars and then a year later has to write it off completely, it raises such questions, the regulator said. She also pointed to comments by John J. Ray III, who took over as FTX’s chief executive officer as part of its bankruptcy and has since described a lack of record-keeping and key controls when he was appointed.

It’s worth considering, Goldsmith Romero said, whether backers may have had potential conflicts of interest, given the interconnectedness of the crypto industry.

“Were there some conflicts that prevented them from really paying attention to the due diligence and the facts that they were uncovering?” she said.

–With assistance from Sonali Basak and Caroline Hyde.

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