FTX investor sues Sequoia Capital, Thoma Bravo, Paradigm

Venture capital and private equity firms including Sequoia Capital, Thoma Bravo and Paradigm were accused in a lawsuit of promoting the legitimacy of FTX, the cryptocurrency exchange that collapsed causing billions of dollars in losses.

The class-action suit filed Tuesday on behalf of investors alleges that the firms participated in a promotional marketing campaign in 2021 to tout their own investments of hundreds of millions of dollars in FTX entities. That added an “air of legitimacy” to the enterprise that ended up going bankrupt in November and whose co-founder Sam Bankman-Fried now faces criminal charges, the investors allege.

Paradigm had no immediate comment and Sequoia and Thoma Bravo didn’t immediately respond to requests for comment.

Venture capital firms have faced criticism for plowing huge sums into FTX at towering prices. The company was valued at more than $32 billion last year, making it briefly one of the most valuable startups in the country.

Sequoia in particular attracted criticism for its support of FTX. The firm, the most prestigious in Silicon Valley, famously backed Bankman-Fried even though he was playing video games during meetings with investors. It also commissioned a 14,000-word profile about the entrepreneur titled “Sam Bankman-Fried Has a Savior Complex — And Maybe You Should Too” that was widely mocked after the company imploded.

Sequoia wrote down the full value of its $214 million investment in FTX shortly after the crypto exchange fell into crisis.

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“We are in the business of taking risk,” Sequoia wrote in a message to investors in November. “Some investments will surprise to the upside, and some will surprise to the downside.”The venture capital firms claimed to have conducted significant due diligence of FTX operations and vouched that the platforms were secure, according to the complaint filed in federal court in northern California.

“As a result of defendants’ significant investments in the FTX entities, each was incentivized to leverage their professional reputations and media outreach capabilities to portray FTX as a trustworthy and legitimate crypto exchange,” according to the complaint.

Investors alleged various violations of state and federal law, including misrepresentation, false advertising and civil conspiracy.

Earlier suits targeted celebrities who promoted the exchange.

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