Blue chip investors’ relations with LPs and regulators have been strained by the FTX fiasco. They are now trying to save face and promising to do better next time around.
This, as the US Securities and Exchange Commission (SEC) is reportedly investigating the due diligence approaches of some of the failed cryptocurrency exchange FTX’s biggest equity backers.
Alfred Lin, the partner responsible for leading Silicon Valley venture capital (VC) firm Sequoia Capital’s investment in FTX, posited Thursday (Jan. 12) at an industry event hosted by the newsletter StrictlyVC that his firm was “misled” by Sam Bankman-Fried and FTX.
Sequoia, which invested $150 million from its $6.5 billion growth fund and $75 million from a separately managed hedge fund into FTX, had previously apologized to its investors for its loss in the fallen cryptocurrency exchange FTX and said it will step up its due diligence for future investments.
Read more: FTX Crypto Founder Bankman-Fried’s Plea Expected Next Week
“We asked, ‘Are these two companies independent?’ and we were told that they were,” Lin said at the industry event this week in reference to the tangled relationship between FTX and its sister trading firm, Alameda Research — whose poor bets are allegedly at the center of the FTX implosion.
Alameda Research was reportedly not included in an organizational chart given to Sequoia by FTX that was meant to outline its corporate architecture of subsidiaries, despite FTX founder Bankman-Fried owning 90% of the trading firm.
The VC fund has since written down its total $225 million investment in FTX to zero. Alameda Research CEO Caroline Ellison has pleaded guilty to criminal charges of fraud and is cooperating with authorities in their investigation of the FTX collapse and her one-time boss, Sam Bankman-Fried.
“What gets me is not that we made the investment,” Sequoia partner Andrew Lin said. “It’s the year-and-a-half of working relationship after the investment and I still didn’t see it — and that’s difficult.”
