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Prominent venture capital firms Temasek, Sequoia Capital, and Softbank are being sued for allegedly facilitating FTX fraud.
Eighteen prominent venture capital (VC) investment firms, such as Temasek, Sequoia Capital, Sino Global, and Softbank, have been identified as defendants in a class-action lawsuit lodged in the United States District Court for the Northern District of California due to their connections with the now-defunct crypto exchange FTX.
The lawsuit, submitted on Aug. 7, claims that the investment firms played a role in “aiding and abetting” the fraudulent activities of FTX. The complaint asserts that the defendants utilized their “power, influence, and substantial resources to propel FTX’s house of cards to its multibillion-dollar magnitude.”
A snippet of Cabo vs. Temasek Holdings lawsuit. Source: CourtListener
The lawsuit contends that the FTX cryptocurrency exchange breached multiple securities regulations and misappropriated customer funds while the defendant VCs presented a misleading portrayal of the exchange, asserting they had performed adequate due diligence. Consequently, these VC firms allegedly “perpetrated, conspired to perpetrate, and/or aided and abetted the FTX Group’s multi-billion-dollar frauds for their own financial and professional benefit,” according to the lawsuit.
In discussing the involvement of VC firms in facilitating FTX fraud, the plaintiffs referenced Temasek and its remarks concerning FTX’s financial situation. Temasek asserts that it undertook an extensive eight-month review of FTX’s finances, audits, and regulatory compliance, claiming it identified no warning signs. The suit states:
“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.“
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The complaint further alleged that these VC firms endorsed the safety and reliability of FTX and promoted the exchange’s supposed efforts to achieve proper regulation.
Temasek was among the initial investors in FTX, contributing $275 million. However, following the collapse of the crypto exchange in November 2022, the investment firm wrote off its entire stake and even reduced compensation for the executives accountable for the FTX investment.
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Temasek, a state-backed investment firm from Singapore, also places the Singaporean government under scrutiny for its lack of oversight.
The FTX collapse triggered a crypto contagion and raised concerns about the entire crypto ecosystem, resulting in a prolonged decline in institutional crypto investment.
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