Kraken founder accuses ‘incompetent VCs’ of enabling ‘obvious fraud’ at FTX
Several venture capital firms, including Sequioa, had invested in the bankrupt FTX.
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.