Kraken founder accuses ‘incompetent VCs’ of enabling ‘obvious fraud’ at FTX Kraken founder accuses ‘incompetent VCs’ of enabling ‘obvious fraud’ at FTX
Several venture capital firms, including Sequioa, had invested in the bankrupt FTX.
2 min read
Updated: Oct. 12, 2023 at 2:29 pm UTC
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.
Jesse Powell, Kraken’s founder, has expressed anger at the venture capital (VC) firms who invested in Sam Bankman-Fried’s (SBF) FTX, saying their incompetence enabled “obvious fraud.”
Powell said the VCs failed to perform due diligence to uncover possible discrepancies at the beleaguered firm. Instead, they allowed themselves to be bamboozled by the personality SBF touted.
According to Powell, the investors failed to consider how the relationship between SBF’s FTX and Alameda would affect the business’s overall operation.
“It never crossed their mind that this behavior, the Alameda-FTX conflicts, could be a problem for a business whose chief responsibility was not losing money,” Powell said.
SBF’s ongoing trial in New York has revealed how he ran the bankrupt firm on his whims with little to no corporate measures that would have protected investors. Incriminating testimonies and evidence from former top executives like the FTX cofounder Gary Wang and Alameda CEO Caroline Ellison have shocked the crypto community.
VCs and FTX
Prominent venture capitalists, including notable names like the Ontario Teachers’ Pension Plan, Sequoia Capital, SoftBank, Sino Global Capital, Paradigm, Temasek, SkyBridge, Multicoin, and others, once provided substantial financial backing to FTX.
Revelations about these investments indicate that these backers allowed the controversial founder of FTX to operate the company with minimal oversight, considering it a relatively secure venture in the volatile cryptocurrency realm.
Reports even detailed instances where the FTX founder conducted video meetings with top venture firm partners while engaged in video games.
Most of these venture capital investors had claimed to perform thorough due diligence, pointing to healthy financials and a user-friendly, regulatory-compliant platform that allowed users to transact and store their digital assets.
However, after FTX’s collapse, most investors, including Paradigm and Sequoia, were compelled to write off their investments as the exchange folded.
Meanwhile, funding from venture capital firms into the cryptocurrency sector has dwindled to levels not seen since 2020, with many retreating from the space due to heightened regulatory scrutiny and the incurred losses. Additionally, some of these firms face legal actions from FTX users who alleged that they were complicit in the fraud.
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Oluwapelumi Adejumo
Oluwapelumi values Bitcoin's potential. He imparts insights on a range of topics like DeFi, hacks, mining and culture, underlining transformative power.
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FTX
FTX is a defunct cryptocurrency exchange, currently in bankruptcy proceedings, that was founded by Sam Bankman-Fried and Zixiao “Gary” Wang in May 2019.
Kraken
Kraken is a San Francisco-based digital asset exchange in euro volume and liquidity that trades various currencies, including Canadian dollars, US dollars, British pounds, and Japanese yen.
Alameda Research
Alameda Research was once a principal trading firm, operating as an arm of the failed crypto exchange, FTX.
Sequoia Capital
Sequoia Capital is a venture capital firm based in Menlo Park, California that specializes in seed, early, and growth stage investments in private firms in the technology sector.
Sam Bankman-Fried is the former CEO, and co-founder of defunct crypto exchange FTX and Alameda Research.
Jesse Powell is an expert in virtual currencies, online/international payments and fraud, as well as co-founder and former CEO of Kraken, one of the most trusted and largest Bitcoin exchanges in the world with number one EUR market share.