In a rare move, American venture capital firm Sequoia Capital reportedly apologized to its fund investors for the $150 million it had lost on the now-bankrupt crypto exchange FTX.
The Wall Street Journal stated that an apology had been sent, citing persons who were acquainted with the situation. During a call with the fund investors on Tuesday, the partners at Sequoia allegedly shared the news that the company intends to enhance the quality of its due-diligence procedures for investments in the future.
According to the reports, a Sequoia partner has claimed that in the near future,
One of the Big Four accounting firms will be able to do an audit on the company’s financial accounts, even if the company is still in its early stages of development.
Deloitte, Ernst & Young (EY), Peat Marwick Goerdeler (KPMG), and PricewaterhouseCoopers are the firms that make up the “Big Four,” which is the name given to the four biggest professional services networks in the world (PwC).
In the beginning of this month, Sequoia wiped down its entire investment in FTX because of the exchange’s difficulties in satisfying customers’ requests to withdraw funds. On November 11, FTX submitted its bankruptcy petition.
According to the article, this particular investment was “one of the biggest written by a venture firm in the organization.” This resulted from the company’s decision to “eschew standard corporate controls,” such as the scrutiny provided by an external board of directors, which is normal for investments of this magnitude.
During the call, partners at Sequoia stated that the company had carried out its due diligence on FTX. However,
“[It] also suspected that FTX had deceived it based on the company’s recent application for bankruptcy, according to the sources.”
In particular, the business claimed that it was mislead by the creator of the FTX, Sam Bankman-Fried, on the links that the exchange had with its parent company, Alameda Research.
Bankman-Fried has now disclosed that FTX lent client cash to Alameda, which resulted in Alameda losing billions of dollars, so leaving FTX with a financial deficit of up to $8 billion.
Transactions between related parties, like the one involving Alameda, often need the approval of the boards of directors, who are accountable for such approval. However, according to the sources, Sequoia and other shareholders sought for a seat on FTX’s board of directors; however, Bankman-Fried informed them on many occasions that their stake in the firm was insufficient to qualify for such a position.
According to those who are acquainted with the situation, the conference call that took place on Tuesday was an unique occurrence for this firm, since Sequoia seldom addresses its larger group of investors, apart from the periodic update calls and in-person conferences that take place.
According to reports made by the Wall Street Journal, which stated the sources they used,
“The precipitous fall of FTX has accentuated a rare moment of unhappiness among Sequoia’s fund investors over some of the firm’s most recent moves,”
Sequoia disclosed to investors of the fund that supported FTX on November 9 that the fund had actual and paper profits totaling $7.5 billion, and that the FTX investment amounted for less than 3% of the firm’s committed capital. This information was included in a message that Sequoia delivered to fund investors.
During this time, the attorney who is representing the new management of FTX, James Bromley, said on Tuesday during a bankruptcy hearing that a “significant percentage” of the exchange’s assets are either missing or have been stolen. Bromley is representing the new management.
According to what Bromley said,
“What we have here is a global, multinational organization, yet it was governed as if it were Sam Bankman-personal Fried’s kingdom,”
In the past, he has also said that “inexperienced and unsophisticated persons” were in charge of FTX and that “some or all of them were corrupted.”
Compiled by Coinbold
