Legal action accuses investors of aiding and abetting FTX fraud
Temasek Holdings and SoftBank Group are named in a US class-action lawsuit that claims investors aided and abetted fraud at collapsed crypto exchange FTX.
The lawsuit – which identifies FTX’s downfall as the largest financial fraud in US history – alleges that investors actively participated by promoting, offering, and selling the company’s yield-bearing accounts and its native cryptocurrency token.
The accusation casts doubt on the rigour and sincerity of investors’ pre-investment and ongoing due diligence, singling out Temasek and SoftBank for having served on the FTX advisory board. It alleges they either knew or were reckless in not knowing that the operation was a “sham.”
FTX’s advisory board stood in place of a proper board of directors, and investors in the four-person group had no binding decision-making power. There was no CFO and no chief compliance officer. In US bankruptcy proceedings, lawyers said FTX founder Sam Bankman-Fried ran the company as a “personal fiefdom.”
For their part, Temasek and SoftBank issued statements flagging the relatively fractional nature of their exposures and reminding stakeholders venture is a risk-on game. They wrote down investments of USD 150m and 275m, respectively.
Temasek went as far as punishing its members of its investment and senior management team in June with reduced compensation, although it did so claiming there was no misconduct. At the time, Temasek noted that its due diligence process for FTX lasted eight months and included input from external legal and cybersecurity specialists.
“[T]he multinational VC defendants poured over hundreds of millions of dollars into FTX and not only financed but directly participated in FTX’s public campaign to create an air of legitimacy in the deceptive FTX platform,” a legal filing in California stated.
“The multinational VC defendants knew that their investments in FTX would be used to promote the deceptive FTX platform as credible and trustworthy. 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.”
In addition to Temasek and SoftBank, defendants were identified as including Sino Global Capital, Sequoia Capital, Thomas Bravo, Tiger Global Management, Ribbit Capital, and SkyBridge Capital, among others. The lawsuit also accuses several banking entities and celebrity brand ambassadors of participating in the fraud.
FTX received some USD 2bn in private funding and its valuation surpassed USD 32bn at one point. After clues of insolvency were detected in leaked balance sheet data, the company was effectively reduced to ashes in less than 48 hours in November 2022.
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