Several private equity and venture capital firms, including Sequoia Capital, Thoma Bravo, and Paradigm are facing a lawsuit alleging that they promoted the validity of a cryptocurrency exchange, FTX. The exchange caused investors to suffer billions of dollars in losses upon its demise.
According to the class-action complaint filed for investors on Tuesday, these firms partook in a marketing campaign in 2021. They boasted about their investments of hundreds of millions of dollars in FTX entities. The FTX lawsuit argues that this publicity gave the enterprise an incorrect appearance of credibility. This ultimately resulted in FTX’s bankruptcy in November, and the co-founder, Sam Bankman-Fried is now facing criminal charges. The aforementioned firms have yet to make a comment regarding the situation.
VC’s vouching for FTX has resulted in a fatal legitimacy for the startup
Venture capital firms have been disparaged for investing large sums into FTX at astonishing prices. The value of the company was more than $32 billion last year. Briefly, but nevertheless, this made it one of the most valuable startups in the country.
Silicon Valley’s most reputable firm Sequoia, in particular, has come under fire for its endorsement of FTX. Nothing came between Sequoia’s support of FTX, even when Bankman-Fried was playing video games during important meetings. It also commissioned a famously ridiculed profile titled “Sam Bankman-Fried Has a Savior Complex — And Maybe You Should Too” about the entrepreneur.
Data from Pitchbook shows that crypto-venture funding faced a 75% decline in the fourth quarter in comparison to the previous year, reaching an all-time low.
The complaint filed in federal court in San Francisco asserts that venture capital firms have conducted extensive due diligence on FTX operations. Moreover, they persuaded the public that the platforms were safe and secure. Thoma Bravo and Paradigm invested more than $100 and $250 million, respectively.
Investors lay the blame on FTX for violating various state and federal laws, including misrepresentation, false advertising, and civil conspiracy.
