Tricky Case : VCs Facing Lawsuit Over Promoting FTX Exchange

• A class-action lawsuit has been filed by FTX investors against venture capital firm Sequoia Capital, private equity firms Thoma Bravo and Paradigm.
• The investors are accusing the firms of touting their own investments in FTX and adding an “air of legitimacy” to the exchange.
• A crypto lawyer is calling it a „tricky case“ as it is unknown what obligation these firms had to „completely separate investors.“

FTX Investor Lawsuit Filed Against Venture Capital Firms

A class-action lawsuit has been filed by FTX investors against venture capital firm Sequoia Capital, private equity firms Thoma Bravo and Paradigm. The investors are accusing the firms of touting their own investments in FTX and adding an “air of legitimacy” to the crypto exchange.

Investors Allegations

The investors allege that the three firms were involved in a promotional marketing campaign in 2021 which added an “air of legitimacy” to FTX. All three firms were also investors in FTX’s $900 million Series B raise in July 2021, with various partners speaking highly of former FTX CEO Sam Bankman-Fried.

„Tricky Case“ For Investors

A crypto lawyer is calling this case a „tricky case“ as it is unknown what obligation these firms had to „completely separate investors“. Liam Hennessy, partner at Australian law firm Gadens stated that while Sequoia’s due diligence wasn’t great, it doesn’t make them liable to others. Hennessy believes this could be a case of „buyer beware“, as there is no suggestion that Sequoia was not playing within regulatory rules.

Subpoenas Issued To Former Executives

In a separate court filing on Feb 15th, Sam Bankman-Fried along with his father, Caroline Ellison (former FTX & Alameda Research exec), Nishad Singh and Gary Wang were issued with subpoenas to provide further evidence for this case. Joseph Bankman, Ellison, Wang and Singh are due to attend court soon.

Conclusion

This investor lawsuit against venture capital firms over allegations they added an “air of legitimacy” to defunct crypto exchange FTX is considered tricky by a crypto lawyer due its unknown obligations regarding complete separation between investor parties. Subpoenas have been issued for former executives for further evidence for this case which will be held in court soon.