FTX Investors’ Due Diligence Being Investigated By The SEC: Reuters

According to two sources familiar with the matter, the SEC is investigating the due diligence conducted by investors in FTX, as the consequences of the cryptocurrency firm’s failure continue to be felt.

The U.S. Securities and Exchange Commission (SEC) has brought charges against three top executives at FTX, a cryptocurrency trading platform that has since filed for bankruptcy, accusing them of defrauding investors.

Reuters reported that the regulator is now reportedly asking financial firms about the due diligence policies and procedures they have in place and whether they followed them when investing in FTX. The SEC has alleged that the Bahamas-based crypto exchange raised more than $1.8 billion from equity investors, including 90 U.S.-based investors, since May 2019. 

It is unclear how many firms have received inquiries from the SEC, or if the firms are targets of the investigation. The inquiries may mean that venture capital firms and investment funds that invested in FTX could face regulatory scrutiny even if they are considered victims of the alleged scheme, as the SEC examines whether they met their fiduciary duties to their own investors.

The U.S. Securities and Exchange Commission (SEC) has reportedly been sending document requests to investors and potential investors in FTX, seeking information about their communications with FTX officials.

This investigation predates the SEC’s recent charges against FTX founder Sam Bankman-Fried for allegedly defrauding investors, and the inquiries to investors have continued following the filing of those charges.

The SEC’s current focus is on the firms’ diligence, according to sources. FTX filed for bankruptcy in November following a liquidity crunch and the SEC, the Justice Department, and the Commodity Futures Trading Commission have all filed fraud charges against Bankman-Fried, who pleaded not guilty to criminal charges including wire fraud and money laundering on Tuesday.