A group of eighteen prominent venture capital (VC) firms have been targeted as defendants in a significant class-action lawsuit regarding FTX fraud. These firms include industry giants like Temasek, Sequoia Capital, Sino Global, and Softbank.

This lawsuit, filed on August 7th, has brought attention to their alleged involvement in facilitating the FTX crypto exchange’s fraudulent activities, which ultimately led to its bankruptcy. The allegations suggest that these VC firms not only engaged in deceptive practices but also encouraged customers to invest in FTX, knowing that the outcome would benefit them personally.

Lawsuit Points to VC Firms’ Role in FTX Fraud

The lawsuit asserts that these VC firms played a pivotal role in what it calls “aiding and abetting” the FTX fraud. It argues that these influential entities utilized their considerable power, influence, and substantial resources to contribute to the rapid expansion of FTX. This eventually led to its crumble like a house of cards, reaching a multibillion-dollar scale.

Sequoia Capital accused of enabling FTX fraud

According to the lawsuit, FTX’s cryptocurrency exchange violated various securities laws and misappropriated funds belonging to its customers. The VC firms, the lawsuit claims, painted an illusory picture of the exchange. It further asserted that they had meticulously conducted due diligence.

However, the reality was starkly different. The VC firms are accused of actively participating in, conspiring to perpetrate, and aiding and abetting FTX Group’s massive fraudulent activities, all for their personal financial gains.

Specific Instances of Deceptive Practices

The plaintiffs in the lawsuit cited specific examples to underscore the VC firms’ role in perpetrating FTX’s fraud. A spotlight was cast on Temasek, particularly its statements concerning FTX’s financial condition. Temasek boasted of an exhaustive eight-month-long review of FTX’s financial records, audits, and regulatory compliance, claiming no signs of concern.

Temask accused of enabling FTX fraud

The lawsuit retorts:

“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.”

Further allegations suggest that these VC giants vouched for the safety and stability of FTX. They even highlighted the exchange’s efforts to secure proper regulation. However, these claims have come under scrutiny as the lawsuit exposes the role they played in exacerbating the situation.

Temasek’s Investment and Broader Implications

Temasek’s involvement as an early investor in FTX is noteworthy. It invested a substantial $275 million in the exchange. However, as FTX met its demise in November 2022, Temasek was compelled to write off its entire investment.

To compound matters, the investment firm also reduced compensation for the executives responsible for the FTX investment. This setback also raised questions about the Singaporean government’s oversight, given Temasek’s state-backed status.

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