On Friday, FTX filed for bankruptcy as former CEO Sam Bankman-Fried resigned and was replaced by John J. Ray III, the lawyer who oversaw Enron’s liquidation. The bankruptcy proceedings promise to be a disturbing one, judging how FTX spends clients’ money and trying to unravel conflicts of interest among its 134 affiliated companies.
“It’s going to be difficult with a lot of connected companies, a lot of debt, a lot of customers, and jurisdictions in different countries,” said Reena Aggarwal, director of Georgetown University’s McDonough Psaros Center for Financial Markets and Policies. “This is a multitude of issues.”
A lot of finger-pointing at the VCs who rushed to throw money at Sam Bankman-Fried, did little or didn’t do the right thing along the way. “If you’re making a small amount of money, you’re probably not going to do the right level of work if you believe in the founder and you think this is a hot business. We’ve seen this in many contexts. [in venture capital],” said Lee Reiner, a professor of FinTech Law and Policy at Duke Law School.
And to be clear, crypto hasn’t been known for much scrutiny and attention to detail. Kevin May, the founder of the leading crypto trading group Floating Point, explained that the VCs have increased the reliability of FTX, but said that playing fast and convenient is part of investing in digital assets, when enjoy the bull market period at the end of 2021 and the beginning. 2022. “Everything in crypto is moving fast,” he said. “It’s hard to blame VCs for playing the game created by crypto,” he explained, referring to how quickly platforms like FTX raised money last year as valuations rose. If VCs are not involved in the financing process within a few days, they risk being left behind. Due to the fact that crypto companies have many financial accounts in the world, tracking the flow of assets is not easy compared to the method of checking the financial health of a standard technology company, as example.
So what is the legal drift?
Few think that FTX’s VC backers are at risk of being sued by small partners, which is rare in Silicon Valley. Commitments LPs often sign to bind a VC partner if the investment results are negative. “For the Sequoias of the world, their LPs aren’t mom-and-pop traders, they’re big corporate investors who are sanctioned, high-net-worth individuals,” Aggarwal explained. “In larger projects for them, there is little investment.”
Legal experts I spoke with think that pension plans invested in FTX—like the Ontario Teachers’ Pension Plan—may be in a tough spot. “Even if you’re a sponsor, they have a legal obligation to manage plan assets to maximize benefits for beneficiaries,” Reiner said. “And they are facing legal responsibility.” The Ontario Teachers’ Pension Plan is funded through its employment wing, the Teacher Employment Fund. “While there is uncertainty about the future of FTX, any losses on this investment will have a minimal impact on the Plan, as this investment represents less than 0.05% of our total net assets,” the statement said. OTPP in a statement issued on Thursday. Aggarwal explained that since OTPP is a small investment, it may not have a significant impact on an individual’s pension.
A recent case study in the crypto case law after the explosion was the bankruptcy proceedings for the Celsius platform that had failed. One thing to watch? The competition between investors, creditors, and shareholders is to choose who is the first to pay when the bank goes bankrupt. In the Celsius case, customers and shareholders are arguing with each other to see who comes first. March and FTX explained that there are likely to be many lawsuits as financial advisers, mostly hedge funds and brokers, strategize the best way for the law to be obtained. something back.
Aggarwal explained that the trial is not only about FTX itself but also against individuals because the extent of the culpability of Bankman-Fried and its inner circle is in court. “I’m sure there will be class action lawsuits here,” he said. However, even if there is a consumer case, it is not clear what assets will be used to pay the jury (Celsius is still involved in several pending lawsuits).
About SBF again? It’s unclear at this time if he will be sent to prison for his role in the FTX scandal, Fortune’s Jeff John Roberts reports. Problems such as FTX’s headquarters in the Bahamas and the lack of clarity about SBF’s intentions could create problems for the prosecution. However, Jeff said, “However, a long-time crypto lawyer told Fortune that he has no doubt that SBF’s behavior and FTX’s business practices clearly showed fraud. The lawyer, speaking about the lack of name, pointed to evidence such as FTX’s arrangements and company disclosures and SBF’s statements. If convicted of wire fraud, he could be sentenced to up to 20 years in prison.
Finally, my colleague Luisa Beltran published a closer look at SBF’s flagship investment fund Alameda Research, including what we know about its 20-something CEO, Caroline Ellison. You can read the full story here.
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Jackson Fordyce hosted the episode for today’s post.
– AgricultureCoole, a France-based multiservice platform for farmers, raised €60 million ($62.17 million) in Series B funding. Treïs group, Temaseka Food decoration led the round together and joined in Eurasian.
– promisea meat company in Sydney, Australia, raised $49.2 million in Series A funding. Black bird a Vitality 7 led the round and was attended by investors including Toyota Institutions, Square branch, Grok, Cavalier, Picture, Special Activities, HostPlus Super LP, NGS Supera Pavilion Capital.
– Elemental Machinesis a software developer from Cambridge, Mass. for labs, it raised $41 million in Series B funding. Sageview Capital a Omega Venture partners co-led the round and included investors including Gutbrain Functions a Digitalis Ventures.
– Hawkenan event marketplace based in New York, raised $9 million in seed funding. Decorative Works led the round and joined By Venture Partners.
– Keyoa biometric identity company in San Francisco, raised $7 million in funding from the Netflix founder Marc Randolph and others.
– Luminopiaa Cambridge, Mass.-based prescription digital therapeutics company developing treatments for neuro-visual disorders, raised $5.7 million in funding. Capital of Shanghai led the round and was attended by investors including Vertical Group, SSI strategy, Sony Venturesand others.
– Thank youa London, UK weather tech and Web3 startup, raised $2.5 million in seed funding. Arcana a Design Marketing Group 2 co-led the round and included investors including Report, It’s a metaphor, Cerulean Venturesa Flori Ventures.
– CloudTrutha Boston-based cloud configuration management platform, raised $2.4 million in seed funding. UBMB led the round and was attended by investors including Glasswing Ventures, York IEa Phase 1 Ventures.
– Table of Peta Mexico City pet food company, D2C, raised $2 million in seed funding. Left Order led the round and joined Goodwater Capital.
– Group of Friends become EdgeCore Digital Architecturea Broomfield, Colo.-based manufacturing base that will invest $1.2 billion.
– Forward lookingsupported by Cornell Capitalagreed to receive it Veatch Ophthalmic Instruments, a Tempe, Ariz.-based raw material supplier. Financial terms were not disclosed.
– wheel agreed to acquire the backend virtual maintenance technology of GoodRx CareSanta Monica, Calif. virtual park PaiRX. Financial terms were not disclosed.