Eighteen leading venture capital (VC) investment firms, including Temasek, Sequoia Capital, Sino Global and Softbank, have been named as defendants in a class-action lawsuit filed in the United States District Court for the Northern District of California for their links to the now-bankrupt crypto exchange FTX.
The lawsuit, filed on Aug.7, alleged that the investment firms were responsible for “aiding and abetting” the FTX fraud. The suit claims that the defendants used their “power, influence and deep pockets to launch FTX’s house of cards to its multibillion-dollar scale.”
The lawsuit states that the FTX cryptocurrency exchange violated several securities laws and stole customers’ funds while the defendant VCs offered an elusive picture of the exchange, claiming they had done their due diligence. Thus, these VC firms directly “perpetrated, conspired to perpetrate, and/or aided and abetted the FTX Group’s multi-billion-dollar frauds for their own financial and professional gain,” the lawsuit claims.
While talking about the role of VC firms in aiding and abating FTX fraud, the plaintiffs cited the example of Temasek and its statement regarding the financial conditions of FTX. Temasek has claimed that they conducted an 8-month-long extensive review of FTX’s finances, audits and regulatory checks and found no red flags. The suit read:
“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. “
The suit further alleged that these VC firms vouched for the safety and stability of the FTX and advertised FTX’s purported attempts to become properly regulated.
Temasek was one of the early investors in the FTX crypto exchange with a $275 million investment, but, after the collapse of the crypto exchange in November. The investment firm wrote off its entire investment in the exchange later and later even slashed compensation for the executives who were responsible for the FTX investment.
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Temasek being a state-backed investment firm also put the Singaporean government in a hot seat over its failure to curb such investment,
FTX collapse created a crypto contagion and cast a shadow of doubt on the entire crypto ecosystem leading to a drought in institutional crypto investment for months.
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