Temasek Holdings and 17 other banks being sued for alleged involvement in FTX fraud

Temasek Holdings and 17 other banks being sued for alleged involvement in FTX fraud

FLORIDA, UNITED STATES — A Mississippi resident, Connor O’Keefe, has filed a lawsuit against Singapore’s state investment firm, Temasek Holdings, and 17 other banks, venture capitalists, and accounting firms, claiming that they conspired with cryptocurrency exchange FTX to defraud investors.

O’Keefe’s funds have been frozen on FTX since the collapse of the cryptocurrency exchange.

The lawsuit, filed on Wednesday (22 Feb) in Miami, Florida, alleges that the parties named in the suit were aware of wrongdoing by FTX’s former CEO, Sam Bankman-Fried, who is facing criminal charges in connection with his role at the exchange.

Venture capital firms Sequoia Capital and SoftBank Vision Fund were also named in the lawsuit.

The class action lawsuit, which is 83 pages long, was filed on behalf of O’Keefe and all others similarly situated, seeking compensatory and punitive damages for the defendants’ “knowing and substantial assistance in furtherance” of Bankman-Fried’s fraud.

The lawsuit claims that the defendants had “wielded their power, influence, and deep pockets to launch FTX’s house of cards to its multi-billion dollar scale”, and “provided critical groundwork for the FTX fraud”.

The lawsuit further alleges that the defendants conducted due diligence checks that would have allowed them to acquire knowledge of FTX’s “omissions and untruthful conduct” and misappropriation of investor funds. However, each defendant allegedly stood to gain financially from said misconduct despite this knowledge, and “agreed, at least impliedly, to assist that unlawful conduct”.

The lawsuit claims that the defendants had “full view” that Sam Bankman-Fried was misappropriating their deposits on “vice, vanity, and speculative personal investments”. “Through diligence on FTX and close ties with (Sam Bankman-Fried), Defendants learned that FTX was operated as (Sam Bankman-Fried)’s personal piggy bank, that as quickly as FTX customer funds flowed into FTX, they flowed back out to other entities (Sam Bankman-Fried) separately owned or controlled, and that FTX lacked the most basic internal controls, such that the enterprise was in fact a house of cards,” alleged the lawsuit.

The lawsuit argues that the defendants “did not care” and “had money to make in the scheme”, and that their interests aligned with Bankman-Fried’s.

“The FTX fraud was straightforward and, though concealed from class members, the fraud was readily apparent to those, like defendants, with visibility into FTX’s operations”, it added.

In response to media queries, Temasek Holdings declined to comment on the ongoing legal matter.

Temasek Holdings had previously announced on November 17 last year that it would be writing down its US$275 million investment in FTX in light of FTX’s bankruptcy filing.

The statement noted that Temasek’s investment in FTX was to invest in a leading digital asset exchange providing it with protocol agnostic and market neutral exposure to crypto markets with a fee income model and no trading or balance sheet risk.

Temasek defended its investment by stating that it had reviewed FTX’s audited financial statements, which showed the exchange to be profitable. It said that its due diligence efforts were focused on the associated regulatory risk with crypto financial market service providers, particularly licensing and regulatory compliance, and cybersecurity.

It also added that it recognised the inherent risks of investing in early-stage companies and took a measured approach to such investments.

However, the new CEO of FTX, John J. Ray III, just less than a week after his appointment following the resignation of Bankman-Fried, criticised the company’s former management in a filing to Delaware bankruptcy court, including Bankman-Fried, for poor record-keeping and a lack of experience among senior managers.

He pointed out that FTX “did not keep appropriate books and records or security controls” for its digital assets, used unsecured shared email accounts to access private keys, and to this day cannot provide a list of those working for the company as at 11 November 2022 — just a few of the series of questionable financial activities listed by Ray — calling the situation “unprecedented”.

Following the resignation of FTX’s founder and former CEO, Bankman-Fried, and the announcement of FTX’s bankruptcy filing, Ray was appointed as Debtor’s CEO of FTX.

Many have since questioned how Temasek Holdings went about its due diligence process before investing US$275 million into FTX.

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