A new lawsuit in the FTX saga claims that over a dozen of venture capital firms were “aiding and abetting” FTX's fraudulent operations.
In a new legal twist, prominent venture capital firms, such as Temasek, Softbank, and Sequoia Capital, found themselves at the heart of a class-action lawsuit.
The case, rooted in the dealings with the now-bankrupt cryptocurrency exchange FTX, suggests that these VCs played a significant role in the platform's alleged fraudulent activities.
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Initiated on August 7th in the United States District Court for the Northern District of California, the lawsuit posits that these investment entities, 18 in total, had participated in “aiding and abetting” fraudulent operations linked to FTX.
At the core of the plaintiffs' arguments is the assertion that these firms leveraged their considerable clout and financial resources to inflate FTX’s market presence, likening it to a precarious "house of cards."
The allegations hold that while FTX was breaching multiple securities regulations and misappropriating client funds, these VC institutions portrayed a positive and misleading image of the crypto exchange.
The plaintiffs accused the VCs of neglecting their fiduciary duty, giving potential investors the impression that thorough due diligence had been conducted. As outlined in the lawsuit, these accusations imply that the VCs not only knew about the malpractices but also "perpetrated, conspired to perpetrate, and/or aided and abetted the FTX Group’s multi-billion-dollar frauds for their own financial and professional gain."
Highlighting the VC firms' alleged collaboration, the lawsuit draws attention to statements made by Temasek regarding its evaluation of FTX's financial standing. Despite an eight-month-long comprehensive examination of FTX’s finances, audits, and regulatory inspections, Tamasek couldn't spot any alarming issues. The suit references:
The Multinational VC Defendants also made numerous deceptive and misleading statements of their own about FTX’s business, finances, operations, and prospects for the purpose of inducing customers to invest, trade, and/or deposit assets with FTX.
Charges continued with claims that these venture capital entities endorsed the FTX platform's integrity and touted its purported endeavors to attain regulatory compliance. Notably, Temasek's hefty $275 million early investment in FTX came under fire.
Following FTX's dramatic downfall in November 2022, Temasek had to write off its entire contribution and reduce the payment for executives involved in this investment decision.
The unraveling of FTX sent shockwaves across the crypto landscape, seeding skepticism about the sector's integrity and cooling institutional enthusiasm toward cryptocurrency investments. As the legal proceedings commence, the focus isn't just on the misdeeds of a single crypto exchange but also on the venture capital powerhouses' alleged role in enabling such a debacle.
