(Bloomberg) -- Venture capital and private equity firms including Sequoia Capital, Thoma Bravo and Paradigm were accused in a lawsuit of hyping the legitimacy of FTX, the cryptocurrency exchange that collapsed causing billions of dollars in losses.

The firms participated in a marketing campaign in 2021 to tout their own investments of hundreds of millions of dollars in FTX entities, according to the proposed class-action complaint filed Tuesday on behalf of investors. The promotion added an “air of legitimacy” to the enterprise that ended up going bankrupt in November and whose co-founder Sam Bankman-Fried now faces criminal charges, the investors allege.

Paradigm had no immediate comment and Sequoia and Thoma Bravo didn’t immediately respond to requests for comment.

Venture capital firms have faced criticism for plowing huge sums into FTX at towering prices. The company was valued at more than $32 billion last year, making it briefly one of the most valuable startups in the country. 

Read More: FTX’s VC Backers Face Serious Questions, CFTC Commissioner Says

Sequoia in particular attracted criticism for its support of FTX. The firm, the most prestigious in Silicon Valley, famously backed Bankman-Fried even though he was playing video games during meetings with investors. It also commissioned a 14,000-word profile about the entrepreneur titled “Sam Bankman-Fried Has a Savior Complex — And Maybe You Should Too” that was widely mocked after the company imploded.

Sequoia wrote down the full value of its $214 million investment in FTX shortly after the crypto exchange fell into crisis.

“We are in the business of taking risk,” Sequoia wrote in a message to investors in November. “Some investments will surprise to the upside, and some will surprise to the downside.”

Crypto venture funding fell to its lowest point in almost two years during the fourth quarter after experiencing 75% decline compared to the same period the previous year, according to data from PitchBook.

The venture capital firms claimed to have conducted significant due diligence of FTX operations and vouched that the platforms were secure, according to the complaint filed in federal court in San Francisco. Thoma Bravo invested more than $100 million in the exchange and Paradigm invested more than $250 million.

“As a result of defendants’ significant investments in the FTX entities, each was incentivized to leverage their professional reputations and media outreach capabilities to portray FTX as a trustworthy and legitimate crypto exchange,” according to the complaint.

Investors alleged various violations of state and federal law, including misrepresentation, false advertising and civil conspiracy.

Earlier suits targeted celebrities who promoted the exchange, claiming that FTX endorsers including Tom Brady and Stephen Curry lured unsophisticated investors.

FTX Investors Go After Brady, Shaq: Here Are Their Legal Chances

The case is Rabbitte v. Sequoia Capital Operations LLC, 23-cv-00655, US District Court, Northern District of California.



(Updates with amounts invested by Thoma Bravo and Paradigm)

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