The U.S. Securities and Exchange Commission (SEC) wants to understand the due diligence process investors followed when it came to investing in collapsed crypto exchange FTX, according to a Reuters report.
The regulator is looking to understand the due diligence policies and procedures FTX investors had in place at the time and whether they followed them when they invested in the exchange, the report said, citing two sources familiar with the matter.
The SEC have already brought charges against three FTX executives for allegedly defrauding investors: Sam Bankman-Fried, the CEO and co-founder of FTX; Gary Wang, the CTO and co-founder of FTX and Caroline Ellison, the CEO of Alameda Research. Both Wang and Ellison have already pleaded guilty and are cooperating with the SEC’s investigation.
The Commodity Futures Trading Commission (CFTC) and the U.S. Attorney’s Office for the Southern District of New York have also brought charges against Bankman-Fried, who pleaded not guilty to fraud charges on Tuesday.
A spokesperson for the SEC declined Reuters’ request for comment on the probe into investors’ due diligence.
Investors could face scrutiny over whether they met their fiduciary duty to their own investors, one source said in the report.
The publication was unable to determine the number of firms that were receiving inquiries from the regulator. FTX raised over $1.8 billion from more than 90 investors over the course of five years.
Disclaimer: Beginning in 2021, Michael McCaffrey, the former CEO and majority owner of The Block, took a series of loans from founder and former FTX and Alameda CEO Sam Bankman-Fried. McCaffrey resigned from the company in December 2022 after failing to disclose those transactions.
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