Eighteen VC Firms, Including Temasek, Sequoia Capital, Sino Global, and Softbank, Named in Class-Action Lawsuit Over FTX Crypto Exchange’s Bankruptcy

Eighteen VC Firms, Including Temasek, Sequoia Capital, Sino Global, and Softbank, Named in Class-Action Lawsuit Over FTX Crypto Exchange’s Bankruptcy

Eighteen Prominent Venture Capital Firms, Including Temasek, Sequoia Capital, Sino Global, and Softbank, Accused in Class-Action Lawsuit Linked to Bankrupt FTX Crypto Exchange

On August 7th, a class-action lawsuit was filed in the United States District Court for the Northern District of California, targeting eighteen influential venture capital (VC) investment firms, among them Temasek, Sequoia Capital, Sino Global, and Softbank. The legal action centers on their alleged involvement with the now-defunct crypto exchange FTX.

The lawsuit contends that these investment entities played a role in “aiding and abetting” the purported fraud orchestrated within FTX. According to the lawsuit’s claims, these VC defendants leveraged their considerable resources, sway, and financial might to propel FTX’s operations into a multibillion-dollar enterprise, described as a “house of cards.”

The core assertion of the lawsuit is that FTX, the cryptocurrency exchange, ran afoul of various securities laws and embezzled funds from its customers. Meanwhile, the accused VC firms presented a deliberately elusive facade of FTX, asserting that they had meticulously undertaken their due diligence. The lawsuit posits that these VC firms were active participants in, or collaborators of, FTX Group’s fraudulent activities, reaping personal financial and professional rewards in the process.

Highlighting the complicity of VC firms in the alleged FTX misconduct, the plaintiffs offered the example of Temasek and its public pronouncements about FTX’s financial state. Temasek claims to have dedicated eight months to an exhaustive evaluation of FTX’s financials, audits, and regulatory assessments, maintaining that no concerning signs were identified. The lawsuit excerpts:

“The multinational VC defendants also propagated a plethora of deceptive and misleading assertions about various aspects of FTX’s enterprise, financials, operations, and future potential, with the intention of luring customers into investing, trading, or depositing assets with FTX.”

Further allegations outlined in the lawsuit assert that these VC entities championed FTX’s stability and security while touting the exchange’s purported commitment to achieving proper regulatory compliance.

Notably, Temasek, which initially invested $275 million in FTX, was one of its early backers. However, following the collapse of the crypto exchange in November 2022, Temasek wrote off its entire investment and took measures to reduce compensation for the executives accountable for the FTX investment decision.

Singapore’s state-backed investment firm, Temasek, has also drawn attention to the oversight shortcomings of the Singaporean government.

The ripple effects of FTX’s collapse reverberated across the cryptocurrency landscape, generating uncertainty that led to a dearth of institutional crypto investments for several months.