VCs firms face class action amid allegations of abetting FTX fraud

A class action complaint, recently filed on Aug. 7, implicates several venture capital firms, painting a grim picture of alleged gross financial mismanagement and deceptive practices.

The plaintiffs, representing a class of impacted investors, allege that the group assured customers that their assets belonged solely to them and would not be transferred to FTX.

Multinational VCs implicated

The litigation implicates multinational venture capital defendants, including SoftBank, Sino Global Capital, Temasek, SkyBridge, Multicoin, and others, for their alleged complicity in the fraud.

These firms purportedly had access to non-public information through their due diligence processes, which included investments of hundreds of millions of dollars from FTX Group into some of the firms’ own funds or partnerships.

The complaint underlines the direct correlation between the alleged fraud and the involvement of the multinational VC defendants, stating that they were instrumental in its occurrence and alleging that the fraud would not have occurred without the multinational VC defendants.

While these defendants are said to have profited from the inappropriate use of customer assets, the plaintiffs’ assets remain missing or inaccessible due to FTX bankruptcy proceedings.

The plaintiffs seek a wide range of reliefs from the court, including class certification, compensatory damages, and restitution.

Alongside this, they demand declaratory and injunctive relief to declare the practices of the multinational VC defendants unlawful, to prevent them from continuing these activities, and to rectify the situation under court supervision.

Defendant countersuits and financial struggles

Amid these allegations, defendant Sino Global Capital recently clarified its position regarding its role in the FTX bankruptcy proceedings. The firm, via a post on X, stated that it had filed a bankruptcy claim of $67M against FTX.

The claim pertains to FTX’s stake in the SGC fund. Sino Global Capital emphasized that FTX’s estate is selling investment fund LP stakes at auction. The firm further clarified that this action would not reduce the pool of money available to creditors, contradicting implications from some media reports.

Meanwhile, SoftBank, another defendant in the class action, reported a surprising net loss on Aug. 7 attributable to owners of the parent amounting to $3.3 billion, a figure considerably below a Refinitv analyst’s estimate that anticipated a $523 million profit.

However, despite the net loss, SoftBank’s technology-focused Vision Fund reported an investment gain of $1.1 billion, marking its first gain after five consecutive quarters. The growth signifies a potential turnaround for Masayoshi Son’s beleaguered Vision Fund, which has witnessed losses in the billions due to unsuccessful tech bets in a high-interest rate environment in the past year or so.

The news comes on the same day that a further class action was filed against former FTX lawyers asserting their role in the FTX’s alleged crimes.