Forced labor remains among the most pressing human rights challenges for companies worldwide. Despite stronger regulations and corporate pledges, millions remain trapped in exploitative conditions,  often deep within complex global supply chains.

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Screening a portfolio for controversial business involvement is fundamentally different in public markets than in private markets. Public assets benefit from established disclosure requirements, third-party coverage, and standardized data, while private assets operate in a far more opaque environment. For ESG teams at LPs and GPs, these differences become especially acute in secondaries transactions, where investors inherit portfolios they did not originate and must assess risk under tight timeframes.

As regulatory frameworks such as SFDR extend similar expectations to private market funds, the gap between public and private screening becomes harder to ignore. Investors are increasingly expected to apply consistent exclusion policies and demonstrate rigorous screening across asset classes, even when data availability, transparency, and control differ materially.

This article examines the practical challenges of screening secondaries portfolios across public and private markets. It highlights where traditional approaches fall short, explores the structural constraints faced by LPs and GPs, and illustrates how hidden exposure can persist in private assets through the case of Crown Resorts and its governance and gambling-related controversies.

Data Availability and Transparency

Public companies typically provide more data through annual reports, revenue disclosures, and ESG rating coverage. For example, a company like Philip Morris International openly reports that almost 100% of its revenue comes from tobacco, making exclusion straightforward. That said, public market screening still relies heavily on self-reported information, which has its own limitations.

Private companies, by contrast, often disclose little to nothing about their business mix. A mid-market private firm may provide no public indication of its activities at all. As a result, GPs have traditionally relied on questionnaires, web searches, and due diligence calls to identify “sin” activities, a manual and imperfect process. Because private companies have no obligation to report controversial involvement, issues may surface only after investment. This opacity places pressure on GPs to demonstrate robust screening, particularly for SFDR Article 8 and 9 funds expected to apply comparable rigor to private assets without comparable data.

Coverage by Third-Party ESG Providers

Public markets benefit from broad coverage by ESG data and controversy research providers that maintain structured involvement lists across sectors such as weapons or gambling. Private markets face a clear coverage gap. LPs cannot assume that external ratings or datasets will flag problematic private companies.

This gap is particularly material for activities more prevalent in private markets, such as predatory lending or adult content platforms,  which are rarely publicly listed. Traditional ESG datasets may miss these exposures entirely. Without alternative data sources, an Article 8 private debt fund could unknowingly finance a highly controversial company simply because it does not appear on any public exclusion list.

LP/GP Constraints and Mandates

Many LPs maintain their own exclusion policies and expect GPs to apply them consistently. In public markets, asset owners can screen holdings directly. Whereas, in private markets, LPs must rely on GPs to implement exclusions during sourcing and due diligence.

This reliance creates friction. A financially attractive deal may still be incompatible with LP mandates, forcing GPs to walk away. Under SFDR, GPs marketing Article 8 or 9 funds must demonstrate that portfolio companies align with promoted ESG characteristics, including exclusions for sectors such as weapons or tobacco. LP due diligence questionnaires increasingly reflect this scrutiny.

Secondaries investors face additional pressure. They must assess large portfolios they did not originate, often under tight timelines. Hidden exposure, such as sanctioned entities or controversial manufacturers, can pose a significant risk, driving increased use of accelerated ESG screening tools prior to acquisition.

Dynamic vs. Static Nature of Private Investments

Public market portfolios can be adjusted quickly if a controversy emerges. In private markets, investors are typically locked in for years, making pre-investment screening far more critical. A failure to identify controversial involvement can leave GPs choosing between remediation efforts and reputational damage.

Private companies also evolve with limited visibility. A business may pivot into controversial activities without public disclosure, and such shifts may only be detectable through external reporting rather than formal announcements. This reinforces the need for both rigorous upfront screening and ongoing monitoring throughout the holding period.

Case Study: Crown Resorts - Gambling and Governance Failures

Company Overview

Crown Resorts is Australia’s largest casino operator, running flagship properties in Melbourne, Perth, and Sydney. Its business model centers entirely on gambling & betting, making it a textbook case of significant involvement - essentially 100% exposure to an exclusion category that many funds ban or cap at ≤5–10% of revenue. Following a string of governance scandals, Crown was acquired by Blackstone in 2022 and delisted, offering a strong private-market example of why business involvement screening must extend beyond public companies.

Controversies SESAMm’s AI screening captures a sequence of serious ESG and regulatory failures:

• International illegality: 2016 arrests of 18 employees in China for promoting gambling in violation of Chinese law.
• Money laundering & crime links: laundering through casino accounts and continued partnerships with junket operators later tied to organized crime.
• Regulatory sanctions: inquiries in New South Wales, Victoria, and Western Australia declared Crown “unsuitable” to hold licenses; regulators imposed monitoring and fines totaling A$200 million+.
• Predatory behavior: evidence of loan-sharking within casino premises, and failure to protect patrons from exploitation.
  

Screening Outcome

Crown is classified as significant involvement in Gambling & Betting, with additional flags under Sanctions & Exclusions. It also shows limited exposure to predatory Lending and minor environmental issues.

Screening Takeaway

Crown demonstrates how a company’s core business model (gambling) can intersect with multi-dimensional ESG risks (AML, governance, and social harm). In private markets, where disclosures are minimal, AI-driven screening enables investors to detect red flags early, determine whether engagement or exclusion is appropriate, and avoid inheriting reputational or regulatory liabilities.

SESAMm’s AI Technology Reveals ESG Insights

Discover unparalleled insights into ESG controversies, risks, and opportunities across industries. Learn more about how SESAMm can help you analyze millions of private and public companies using AI-powered text analysis tools.

November 11, 2022, FTX, a $32 billion cryptocurrency exchange company that many believed would “change the world,” filed for bankruptcy. This news shook the crypto and financial communities, compelling many to debate the future of the crypto market and its platforms.

How did FTX collapse?

You could say that FTX’s collapse began before the news broke, but here’s a summary of events as The New York Times and ABC News details:

Breaking news

In early November, CoinDesk, a crypto publication, broke the news on a leaked document from FTX. The balance sheet showed that the hedge fund run by Sam Bankman-Fried (SBF), Alameda Research, held a substantial amount of FTT tokens. In short, SBF had set up Alameda (his trading firm) and FTX (his exchange firm) in such a way that if one unit experienced trouble, such as dropping cryptocurrency prices, the other experienced it, too.

First domino falls

By the way, FTT is used for various functions, including traders’ payment of operation fees. Also, by the way, Changpeng Zhao, Binance’s Chief Executive, sold his stake in FTX to SBF in 2021, partially with FTT. So, “due to recent revelations,” Binance (Zhao) announced on November 6, 2022, that it would sell its FTT tokens.

Other dominos follow

Traders responded; they hurried to pull funds out of FTX out of fear, and FTT’s price fell. Meanwhile, FTX processed withdrawal requests over three days, amounting to an estimated $6 billion. The liquidity crunch was upon it.

Then, on November 8, Binance said it would bail out FTX. But on November 9, Binance backtracked and announced in a Tweet that it would not “as a result of corporate due diligence,” while also citing regulatory investigations and reports of mishandled funds.

Things get worse

The next day, November 10, the Securities Commission of the Bahamas froze FTX’s assets, citing the public statement about potentially “mishandled” and “mismanaged” customer funds. On November 11, FTX filed for Chapter 11 bankruptcy protections, and SBF resigned as CEO. John J. Ray III—famously known as the CEO who headed the infamously known energy company, Enron, through its collapse in the 2000s—replaced SBF on November 17.

Fallout

Today, FTX faces federal investigation for securities laws violations based on a report by The Wall Street Journal regarding FTX lending customer deposits to Alameda Research for liabilities, of which the company’s top executives were aware. Investors have suffered loss, traders have suffered loss, and the greater crypto community and regulators are asking questions.

FTX and SBF web data analysis

News about FTX’s collapse generated tons of web data for us to scour. With this data, here’s what we aimed to find out:

• How did the public web react to FTX’s collapse?
• Could we have seen red flags before the news broke?
• What was FTX’s collapse’s effect on the cryptocurrency market’s sentiment?
• Is it possible to evaluate cryptocurrency exchange companies’ ESG risks and opportunities?
• Was FTX’s collapse unprecedented? If not, what does web data tell us about that?

FTX and Sam Bankman-Fried mentions analysis

Web public sentiment for FTX and SBF was consistently positive until Q1 of 2022. As mentions volume increased, their sentiment polarity decreased (Figure 1). The mentions spike for both in November when CoinDesk broke the news. Likewise, polarity dips into the negative range for both.

Definition: Polarity represents the aggregate of positive and negative sentiments (opinions or reviews) on a company. A 0 score means there is as much positive as negative sentiment expressed. The dotted and dashed lines represent sentiment in the following charts.

Looking closer at Q1 (Figure 2), we find that mentions affecting sentiment increased for FTX and SBF during this period. What are the mentions about, and why did they affect polarity negatively?

It turns out that SBF is linked to other keywords—we call these co-mentions—and between January 2022 and November 2022, SBF/withdrawal co-mentions (Figure 3) spiked in July when SBF defended Terra Luna’s founder, who was accused of peddling a Ponzi scheme.

If withdrawal co-mentions brought up possible reasons why SBF and FTX experienced dips in sentiment, what other co-mentions could give us more insight? How about donations, SEC, and U.S. elections?

Bankman-Fried has exhibited patterns of making political statements, attempting to influence crypto regulations, and donating funds before elections. It should be no surprise that SBF’s co-mentions with C-level unethical practices yield additional data.

Note: To see the co-mentions with unethical practices chart, contact a SESAMm representative today.

Sam Bankman-Fried ESG risk analysis

Corporate governance stands out when evaluating SBF’s ESG risks, but his social risks are nothing to ignore either.

Two areas of governance risks to note are money laundering and board of directors (Figure 5). Money laundering as a co-mention has been an issue as early as February 2022, but it became a bigger issue in October. These risks may be popping up due to allegations of manipulating the price of the APT token and a securities violations probe.

Note: To see the social risks over time chart, contact a SESAMm representative today.

FTX and crypto market web data analysis

If you’ve read this far, you by now get an impression of FTX and SBF, from mention volume to sentiment analysis and ESG risk. But how did FTX’s collapse affect the overall cryptocurrency market? Let’s find out.

In comparing the sentiment polarities for FTX and the crypto market from January 2021 through November 2022 (Figure 6), the sentiment for crypto remains relatively steady despite FTX’s sentiment taking a hit.

When comparing other cryptocurrency exchanges to FTX (Figure 7), sentiment polarity for them is hardly affected, except Binance, because of its connection with FTX. Oddly enough, eToro experienced a boost in sentiment, possibly because of its core values around openness and transparency, the fact that they’ve been around since 2007, its early compliance with regulations (i.e., AMF, FCA, ASIC, BaFin, and ACPR), and that it also proposes investing in stocks and ETFs, a contrast to most other crypto market exchanges. Bitfinex has its own issues, so its dip in sentiment might not be correlated.

At this time, FTX’s ESG risks based on the mention volume are only surpassed by Bitfinex (Figure 8), which its risks are based on many other reasons we won’t get into in this article.

Note: To see a comparison chart of social and governance risks for each exchange, contact a SESAMm representative today.

Centralized vs. decentralized crypto exchange platforms

FTX’s collapse also affected sentiment around the centralized vs. decentralized debate. Since October 2022, sentiment for centralized exchange platforms, such as FTX and its competitors, has fallen (Figure 9).

Likewise, the mention volume for self-custody has more than doubled in the last couple of months (Figure 10). Although centralized platforms offer quicker and easier access to crypto trading, traders are considering complex but more secure options such as crypto wallets and keys because, like banks, centralized exchanges can do what they will with cryptocurrency while it’s in their possession. With self-custody, owners are in control.

Note: To see additional charts, such as competitive data share for crypto wallets, contact a SESAMm representative today.

FTX not the first exchange collapse

Believe it or not, FTX was not the first crypto exchange to collapse. In 2014, Mt. Gox—the biggest crypto exchange at the time—lost half a billion dollars worth of Bitcoin due to a hack. How did Mt. Gox’s collapse affect sentiment for the crypto market then? The short answer is: It didn’t.

Figure 11 shows that while Mt. Gox’s sentiment polarity fluctuated, even reaching negative territories, the sentiment for the crypto market remained relatively stable and positive.

Is FTX’s collapse a warning for investors?

Our analysis is that investors should treat cryptocurrency exchanges like any investment opportunity. Do your due diligence and monitor your portfolio with tools like SESAMm’s TextReveal®.

As for the cryptocurrency market, data shows that sentiment for it remains level and positive. We speculate that cryptocurrency and centralized exchanges are here to stay. However, based on historical data and current news, we suspect conversations about crypto regulations to increase.

Reach out to SESAMm

For a deeper analysis of FTX’s collapse and access to all charts and supportive-article links, reach out to a representative today.