Sequoia Capital—Sequoia Capital lost $213M on FTX investment after failing to detect fraud despite claiming rigorous due diligence
Sequoia Capital invested over $213 million in FTX entities. The firm publicly promoted FTX and Sam Bankman-Fried, publishing a glowing profile and having partners vouch for the exchange's safety. When FTX collapsed in November 2022, approximately $8 billion in customer funds were missing and Bankman-Fried was later convicted of seven criminal fraud counts. A class action lawsuit (Rabbitte v. Sequoia Capital Operations LLC) alleged the firm lent an 'air of legitimacy' to FTX and would have discovered the fraud had it conducted genuine due diligence. Two partners involved in the FTX investment later departed the firm.
Scoring Impact
| Topic | Direction | Relevance | Contribution |
|---|---|---|---|
| Consumer Protection | -against | secondary | -0.50 |
| Corporate Governance | -against | primary | -1.00 |
| Overall incident score = | -0.510 | ||
Score = avg(topic contributions) × significance (critical ×2) × confidence (0.68)× agency (negligent ×0.5)
Evidence (2 signals)
Class action lawsuit filed against Sequoia Capital for promoting FTX and failing to conduct genuine due diligence
Former FTX customers filed Rabbitte v. Sequoia Capital Operations LLC in US District Court for the Northern District of California in February 2023, alleging Sequoia lent legitimacy to FTX through promotional activities and would have discovered fraud through genuine due diligence.
Sequoia Capital wrote down $213.5M FTX investment to zero and apologized to investors
Sequoia Capital wrote down its $213.5 million investment in FTX entities to zero following the exchange's collapse and bankruptcy filing. The firm apologized to its investors and said it would step up its due diligence for future investments.