VCs Consider Suing Bankman-Fried

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Venture capitalists who collectively plowed billions of dollars into FTX are discussing whether to sue Sam Bankman-Fried for alleged fraud, two people familiar with the matter said.

A lawsuit would be aimed at recovering money to offset what shareholders have likely lost now that FTX has filed for bankruptcy. Among the questions are whether Bankman-Fried will have enough personal assets for investors to pursue.

The Takeaway

Venture capitalists who invested in FTX are discussing whether to sue Sam Bankman-Fried to try to recover some of their losses.

Any lawsuit would add to a litany of legal problems facing Bankman-Fried, including reported investigations by the U.S. Justice Department and Securities and Exchange Commission as well as what are likely to be lengthy bankruptcy proceedings for his companies, FTX and Alameda Research. Depositors in FTX could also sue. Bankman-Fried didn't immediately respond to a request for comment.

Bankman-Fried raised nearly $2 billion for FTX from some of the deepest pockets in tech and finance, including Sequoia Capital, Paradigm, SoftBank, Tiger Global Management, Thoma Bravo and Lightspeed Venture Partners. It’s unclear whether those high-profile firms will participate in the lawsuit. FTX had 86 investors overall, according to PitchBook. None of the investors took seats on FTX’s board of directors, but they invested in part based on Bankman-Fried’s high profile and connections in the crypto world.

Some investors now say they believe Bankman-Fried lied to them over the past few months about FTX’s financial health and vulnerability to trading losses suffered by Alameda this year. Bankman-Fried has taken personal responsibility for the firm’s collapse. On a call with investors last week as FTX was collapsing, Bankman-Fried said he “fucked up.”

The lawsuit might not move forward. Some investors believe a corporate bankruptcy or potential customer claims would leave Bankman-Fried without enough money for them to go after. Moreover, most investment firms will lose only a tiny portion of their total assets under management from the FTX collapse, making a lawsuit potentially less fruitful. See this report detailing which venture capitalists lost the most.

Cory Weinberg is deputy bureau chief responsible for finance coverage at The Information. He covers the business of AI, defense and space, and is based in Los Angeles. He has an MBA from Columbia Business School. He can be found on X @coryweinberg. You can reach him on Signal at +1 (561) 818 3915.

Kate Clark is a deputy bureau chief at The Information and the author of the twice-weekly column, Dealmaker. She is based in New York and can be found on Twitter at @KateClarkTweets. You can reach her via Signal at +1 (415)-409-9095.