Temasek, other institutions sued for ‘aiding and abetting’ FTX fraud

 Investment company Temasek was named in a class action lawsuit filed in Miami, Florida, on Wednesday (Feb 22) as one of 18 defendants that allegedly conspired with troubled cryptocurrency exchange FTX to defraud customers.

The complaint was filed by one of the exchange’s customers, Connor O’Keefe, a Mississippi resident, on behalf of himself and “all others similarly situated”.

The suit claimed that “defendant venture capital firms wielded their power, influence and deep pockets to launch FTX’s house of cards to its multibillion-dollar scale”.

It alleged that the defendants had been “aiding and abetting fiduciary breach”, and the class members are seeking compensatory and punitive damages, among other reliefs.

The firms named include the New York-based Signature Bank, as well as venture capital firms such as Sequoia Capital Operations and SoftBank Vision Fund.

The 83-page document seen by The Straits Times alleges that the firms had been aware of fraud being committed by FTX, by virtue of conducting due diligence checks prior to their investments.

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It cited a Nov 17, 2022, statement on Temasek’s website days after FTX filed for bankruptcy protection in the United States, which said: “We conducted an extensive due diligence process on FTX, which took approximately eight months from February to October 2021.”

This included looking into the associated regulatory risk with crypto financial market service providers, as well as combing through the exchange’s audited financial statement.

As part of its process, Temasek had also sought the advice of external legal and cyber-security specialists, and interviewed people familiar with the company, namely employees, industry participants and other investors.

The statement said: “Throughout the multiple rounds of due diligence, FTX demonstrated a clear willingness to discuss and engage with us, which indicated that they were willing to do business in the right way. 

“During this process, we enquired about the relationship, preferential treatment, and separation between Alameda and FTX, and were given appropriate confirmations that were contractually binding.”

It reiterated that its US$275 million investment in FTX was not for cryptocurrencies, with US$210 million going to a minority stake of about 1 per cent in Bahamas-headquartered FTX International, while the other US$65 million was for a minority stake of about 1.5 per cent in FTX US, the American subsidiary.

Sam Bankman-Fried, the embattled co-founder and former chief executive of the once-prominent cryptocurrency exchange, has been accused of stealing billions of dollars from customers to plug losses incurred by sister firm Alameda Research, which acted as his hedge fund.

In response to queries from ST, a Temasek spokesman said it was aware of the lawsuit, but declined to comment as it is an ongoing legal matter.

The Wall Street Journal quoted a spokesman for Signature Bank as saying the allegations had no merit, while SoftBank declined to comment.

The US Securities and Exchange Commission in December 2022 charged Bankman-Fried with defrauding FTX investors, and on Thursday, he was handed four new criminal charges in a New York federal court.

The latest 12-count indictment accuses him of concealing from Alameda’s lenders and FTX’s equity investors the fact that Alameda had taken billions of dollars from FTX.

Bankman-Fried, who is currently out on a US$250 million bond, is set to face trial on Oct 2. THE STRAITS TIMES