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New FTX lawsuit implicates large VC firms and primary legal counsel

FTX lawyers and VC firms sued in class action lawsuits

Since the fall of FTX, the aftereffects has continued to persist in the crypto space.

Now, the primary legal counsel and VC firms have been implicated in legal issues before and after the collapse of the crypto exchange.

FTX lawyers in legal quandary

Fenwick & West, once FTX’s primary legal counsel, have now been entangled in a new class action lawsuit filed in California by FTX customers on August 7.

The lawsuit accuses the law firm of establishing “shadowy entities” for the crypto exchange. These entities helped divert billions of dollars of customers’ funds towards Alameda Research, a trading firm linked to FTX.

According to the filing, Fenwick & West helped structure acquisitions for the FTX US subsidiary, which was used to dodge regulatory oversight of the exchange.

It doesn’t stop there, the suit implied that there was cooperation between FTX, its affiliates, and the law firm that helped in designing an agreement that misled customers, using financial benefits as bait.

Read more: FTX founder denies witness tampering, lawyers say it’s wrong to seek detention

VC firms served in similar suit

In another similar suit, Temasek, Sequoia Capital, Sino Global, Softbank, and 14 other venture capital firms are alleged to have actively supported and encouraged FTX’s wrongdoings. According to the lawsuit, these VC companies neglected to perform adequate due diligence before investing in the company with hundreds of millions of dollars from investors.

According to the lawsuit, the VC firms “performed, conspired to perpetrate, and/or aided and abetted the multi-billion-dollar frauds of the FTX Group for their own financial and professional gain.”

One of them is the Singapore state fund Temasek, which reduced the salaries of the employees in charge of managing its investment in FTX. Temasek had previously asserted that it had spent eight months looking into the exchange’s finances, audits, and regulatory scrutinity before discovering anomalies. The company had made two fundraising rounds’ worth of investments totaling $210m and another $65m in the exchange, all of which it had to write down.

The lawsuit highlights the FOMO and willingness of VC firms to invest in FTX during the bull run of the cryptocurrency market, despite clear warning signs. Some of the concerned VC companies have accepted responsibility and acknowledged their lack of due diligence. 

Disclaimer: CryptoPlug does not recommend that any cryptocurrency should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.

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