Some FTX investors have filed a class action lawsuit against venture capital (VC) and private equity firms, including Sequoia Capital, Thoma Bravo, and Paradigm, for allegedly hyping the legitimacy of the now-bankrupt cryptocurrency exchange.
FTX Sues 3 VC firms
Per a Wednesday Bloomberg report that cited a class-action complaint filed on February 14, the plaintiffs alleged that the VC firms took part in a promotional marketing campaign in 2021 “to tout their own investments of hundreds of millions of dollars in FTX entities.”
According to the investors, the promotional marketing campaign in which the firms participated added an “air of legitimacy” to FTX.
The complaint, filed in federal court in northern California, stated that the VC firms claimed to have carried out due diligence of “FTX operations and vouched that the platforms were secure.”
“As a result of defendants’ significant investments in the FTX entities, each was incentivized to leverage their professional reputations and media outreach capabilities to portray FTX as a trustworthy and legitimate crypto exchange,” the complaint said.
Plaintiffs Allege Violations of State and Federal Law
The plaintiffs alleged various violations of state and federal law by the firms. This includes misrepresentation, false advertising, and civil conspiracy.
The three VC firms participated in FTX’s $900 million Series B fundraiser in 2021. At the time, the firms all heaped praises on the crypto exchange. Alfred Lin, partner at Sequoia, labeled FTX as a “high-quality and “global crypto exchange the world needs.” Following FTX’s collapse last year, Sequoia marked down its roughly $210 million investment in the crypto exchange to zero.
Sequoia faced the most criticism for its support of FTX and its Sam Bankman-Fried (SBF). According to reports, the VC commissioned a 14,000-word profile about FTX founder titled “Sam Bankman-Fried Has a Savior Complex — And Maybe You Should Too,” which was widely mocked after the crypto exchange’s collapse.
FTX faced a liquidity crunch and filed for Chapter 11 bankruptcy protection in November. Since the exchange collapsed, a number of lawsuits have been filed as investors seek to recover their money.
Image: Midjourney
