Temasek among 18 companies hit by US class action lawsuit for allegedly defrauding FTX customers

SINGAPORE: Singapore's state investment firm Temasek, along with 17 other banks, venture capitalists and accounting firms, is being sued for allegedly conspiring with cryptocurrency exchange FTX to defraud investors.

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

The 83-page class action lawsuit was filed in Miami, Florida on Wednesday (Feb 22) by Connor O’Keefe, an FTX customer whose funds have been frozen in his FTX account since the collapse of the cryptocurrency exchange.

The Mississippi resident claimed the 18 defendants knew about the alleged fraud occurring at FTX, but "did not care" because they had "money to make in the scheme".

He had filed the lawsuit "on behalf of himself and all others similarly situated", seeking compensatory and punitive damages for the defendants' "knowing and substantial assistance in furtherance" of FTX founder Sam Bankman-Fried's fraud.

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", claimed the lawsuit.

According to the document, the due diligence checks that the defendants had conducted would have allowed them to acquire knowledge of FTX’s "omissions and untruthful conduct" and misappropriation of investor funds.

Each defendant also allegedly stood to gain financially from said misconduct despite this knowledge, and "agreed, at least impliedly, to assist that unlawful conduct", it claimed.

The lawsuit also stated 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. 

"But Defendants did not care. They, too, had money to make in the scheme, and their interests aligned with (Sam Bankman-Fried)’s."

In response to CNA's query, Temasek Holdings said: "As this is an ongoing legal matter, we decline to comment."

In November last year, Temasek said it would write down its US$275 million (S$376.8 million) investment in FTX, irrespective of the outcome of the cryptocurrency exchange's bankruptcy protection filing.

In its statement on Nov 17, it added that there have been "misperceptions" about its investment in FTX as an investment into cryptocurrencies, and that it had "no direct exposure to cryptocurrencies".

The state investment firm also addressed its assessment of FTX founder Sam Bankman-Fried.

"It is apparent from this investment that perhaps our belief in the actions, judgment and leadership of Sam Bankman-Fried, formed from our interactions with him and views expressed in our discussions with others, would appear to have been misplaced," Temasek said.

"We expect companies that we invest in to comply with their obligations under the laws and regulations of jurisdictions in which they have investments or operations, abide by sound corporate governance, and above all act ethically always."

Prior to its investment, Temasek said it had conducted an "extensive" due diligence process on FTX, which took approximately eight months from February to October 2021.

During this period, Temasek's review of FTX’s audited financial statement showed it to be profitable, with its due diligence efforts focused on the associated regulatory risk with crypto financial market service providers - particularly licensing and regulatory compliance, and cybersecurity.

It added that it had sought advice from external legal and cybersecurity specialists in key jurisdictions, with legal and regulatory review done for the investments.

Temasek said it had also separately gathered qualitative feedback on the company and management team based on interviews with people familiar with the company, including employees, industry participants and other investors.

After its investment, it said it continued to engage FTX management on business strategy and monitor performance.

"We recognise that while our due diligence processes may mitigate certain risks, it is not practicable to eliminate all risks." said Temasek.

Sam Bankman-Fried currently faces 12 criminal charges, including four for fraud and eight for conspiracy, up from eight charges in an earlier indictment, to which he has pleaded not guilty. His trial is scheduled to start on Oct 2.