FTX Lawsuits Pile Up: Silvergate Bank, Sequoia Capital, Paradigm, Face Litigation

Major institutions face class action lawsuits over their roles in enabling and promoting FTX.

A woman carying boxes from Silvergate and other brands to Sam Bankman Fried.
  • Silvergate Bank is a target of a class action lawsuit for participating in SBF’s “multibillion-dollar fraudulent scheme.” 
  • Venture firms Sequoia Capital, Thoma Bravo, and Paradigm Investments face litigation over promoting FTX. 
  • Earlier lawsuits targeted celebrities, including Tom Brady and Larry David. 

Crypto exchange FTX, which went bankrupt last year, left a trail of lawsuits in its wake. Major banks and venture firms face legal action for their alleged role in promoting or enabling Sam Bankman-Fried’s fraud. Some of the companies recently embroiled in lawsuits include Sequoia Capital, Thoma Bravo, Paradigm, and Silvergate Bank. 

Silvergate Bank Knew FTX Was Comingling Funds: Class Action Lawsuit

On Feb. 14, lawyers representing a San Francisco-based FTX user filed a proposed class-action lawsuit against the major bank. The lawsuit accuses Silvergate of participating in a “multibillion-dollar fraudulent scheme” by Sam Bankman-Fried (SBF). 

Sponsored

According to the plaintiff, Silvergate Bank and its parent company Silvergate Capital Corporation knew about fraud in FTX. They alleged that the companies, and their CEO Alan Lane, knew about Alameda Research’s use of FTX customer funds. Despite that, they allegedly concealed “the true nature of FTX” from its customers. 

In early January, Bloomberg reported that the US Justice Department is looking into Silvergate Capital Corp.’s dealings with FTX and Alameda Research. This is allegedly part of a larger probe to determine what banks and other financial institutions knew about SBF’s fraud

Another class-action lawsuit set sights on Sequoia Capital, Thoma Bravo, and Paradigm. According to Bloomberg, the lawsuit alleges venture firms boosted FTX’s legitimacy with their investments. 

Venture firms participated in a 2021 marketing campaign and promoted their multi-billion dollar investments in FTX entities. This campaign added an “air of legitimacy” to the now-bankrupt exchange. 

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As a result, the lawsuit alleges that regular investors underestimated the risk of holding their money in FTX. The class action lawsuit claims the venture firms are guilty of misrepresentation, false advertising, and civil conspiracy, among other violations. 

After the FTX collapse, Sequoia attracted massive criticism for its earlier praise of Sam Bankman-Fried. In a since-deleted profile on their site, the venture firm praised SBF for playing video games during his investment pitch. 

All three venture firms in the lawsuit lost millions in the FTX collapse. Thoma Bravo invested more than $100 million in the exchange, while Paradigm invested $278 million. In November, Sequoia marked down its $214 million investment in FTX to zero.

Celebrity Lawsuits: From Tom Brady to Larry David

Previous lawsuits targeted celebrities who promoted the exchange, including Tom Brady, Larry David, and investor Kevin O’Leary. These lawsuits claimed that celebrity sponsors enticed inexperienced investors to put their money in FTX. 

Tom Brady was one of the most visible FTX sponsors. The star quarterback and his wife, Gisele Bundchen, allegedly put their $650 million fortune in the exchange. 

Investor and former “Shark Tank” star Kevin O’Leary was a paid spokesperson for FTX. He defended SBF even after the FTX collapse, saying he would still back SBF’s future ventures

Comedian Larry David promoted FTX in a 2022 Super Bowl ad as a “safe and easy way to get into crypto.”

On the Flipside

  • All individuals and institutions that promoted FTX lost money themselves. However, that does not necessarily absolve them of liability. 
  • The FTX collapse has caused US regulators to tighten crypto regulations, especially targeting crypto exchanges. 

Why You Should Care

These lawsuits show that the fallout from the FTX collapse is not yet over. Moreover, they show that investors want to make institutions accountable for their role in the crash. 

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Author
David Marsanic

David Marsanic is a journalist for DailyCoin who covers the intersection of crypto, traditional finance, and government. He focuses on institutionalized crypto entities like major cryptocurrency exchanges and Solana, breaking down complex topics into easy-to-understand writing. David's prior experience as a business journalist at various crypto and traditional news sites has enabled him to maintain a critical approach to news while adhering to high journalistic integrity standards.