Temasek named in class action lawsuit allegedly 'aiding and abetting' FTX fraud

Temasek was recently named in a class action lawsuit filed in Miami, Florida, as one of 18 defendants due to its association with beleaguered cryptocurrency exchange FTX to defraud customers. Other prominent names included Sequoia Capital Operations and SoftBank Vision Fund. According to the class action complaint filed, seen by MARKETING-INTERACTIVE, the suit claimed that “defendant venture capital firms wielded their power, influence and deep pockets to launch FTX’s house of cards to its multibillion-dollar scale”.

The lawsuit also pointed to a statement on Temasek’s website dated 17 November 2022, which read: “We conducted an extensive due diligence process on FTX, which took approximately eight months from February to October 2021.”

The 83-paged lawsuit adds that “Temasek, for example, reports that it conducted eight months of diligence, including significant regulatory and licensing due diligence on the business model of FTX, particularly on financial regulations, licensing, anti-money laundering (AML) / Know Your Customer (KYC) and sanctions across multiple jurisdictions, a review of [FTX’s] audited financial statements and a cybersecurity review.”

It also said that Temasek reports to have done its due diligence throughout multiple rounds, and  specifically “enquired about the relationship, preferential treatment, and separation between Alameda and FTX”. For this it “gathered qualitative feedback on FTX and [its] management team based on interviews with people familiar with the company, including employees, industry participants, and other investors.”

Meanwhile, Temasek has also initiated an internal review, deputy prime minister and minister for finance Lawrence Wong told parliament in December last year. The initiation was done after Temasek said it would write down its US$275 million investment into cryptocurrency exchange FTX.

In response to questions, minister Wong said that while it is understandable that some members have suggested implementing more guidelines and safeguards over the investments made by Temasek and GIC, "the governance structures in place today for Temasek and GIC are already more extensive than those of a typical company". 

Wong said that, "Temasek recognises this and has issued a comprehensive statement to explain its due diligence process and the circumstances leading to its investment in FTX. Temasek has also initiated an internal review by an independent team to study and improve its processes, and to draw lessons for the future.”. 

He added that while the FTX loss is disappointing, and is being taken seriously, the occurrence of investment losses does not in itself imply that the governance system is not working. Rather, this is the nature of investment and risk-taking.

“What is important is that our investment entities take lessons from each failure and success, and continue to take well-judged risks in order to achieve good overall returns in the long term. In this way, we can continue to add to our national reserves, and provide a stable income stream to fund government programmes for a long time to come,” he said. DPM Wong also said he is confident that the Temasek Board and management team will learn and improve from this experience.

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