Recently, 18 top venture capital (VC) firms, including names like Temasek, Sequoia Capital, Sino Global, and Softbank, have been implicated in a collective lawsuit filed in the Northern District of California Court in the United States. This lawsuit revolves around their associations with the cryptocurrency exchange FTX, which has since declared bankruptcy.
On August 7th, the lawsuit was filed, alleging that these investment companies bear responsibility for “supporting and abetting” the FTX fraud. The lawsuit also alleges that the defendants used their “power, influence, and assets” to elevate FTX to a billion-dollar scale.
The lawsuit specifically claims that these VC firms facilitated the fraud of billions of dollars from customers by declaring that they had conducted their due diligence on the exchange. This scenario creates a situation where FTX violates securities laws and misappropriates customer funds.
The lawsuit further asserts that these investment firms demonstrated the safety and stability of FTX and endorsed the exchange’s efforts to comply with regulations.
In particular, Temasek, a prominent company, was named in the lawsuit, highlighting their statements regarding FTX’s financial situation. Temasek had previously declared that they had conducted an extensive 8-month assessment of FTX’s finances, audits, and regulatory compliance and found no concerning indicators.
Previously, Temasek had invested $275 million in FTX, but after the cryptocurrency exchange’s bankruptcy in November 2022, they withdrew their entire investment and reduced compensation for those involved in managing the FTX investment.
The collapse of FTX has spread uncertainty throughout the cryptocurrency community and generated doubts about the industry’s safety. This has led to a prolonged “investment drought” for cryptocurrency organizations.
Consequently, this lawsuit raises questions about the responsibility of investment firms and how they evaluated and supported FTX during their operations.