A member of the Ontario Teachers’ Pension Plan (OTPP) has filed a lawsuit against the pension plan alleging that the board did not conduct proper due diligence when investing US$95 million in the now defunct FTX crypto exchange.
According to a statement of claim filed with the Ontario Superior Court of Justice and obtained by BNNBloomberg.ca, the action came out of two “ill-fated investments” in FTX, the owner and operator of the cryptocurrency exchange. The lawsuit seeks to recover the losses from the investment, which according to the document were caused by a “breach of its fiduciary duty.”
“During its due diligence and investment approval process, the Board failed to obtain adequate and reliable information about the FTX Entities’ internal controls in the critical areas of management and governance, finance and accounting, as well as digital asset management, information security and cybersecurity,” the document reads.
In a statement to BNNBloomberg.ca Thursday, a spokesperson for OTPP said it is aware of the statement of claim that was filed.
“We believe that the claim is without merit and intend to defend ourselves. We take our responsibility for the investment of plan assets seriously and have strong investment risk management processes, including robust due diligence on all private investments,” the statement said.
“Given the matter is before the courts, we have no further comment at this time.”
The allegations against OTPP have not been proven in court.
While selecting the investments, the plaintiff alleges the OTPP board “failed to comply with the Plan’s SIPP,” which mandates it to “weigh relevant risks” related to governance factors and OTPP’s responsible investing guidelines.
The document notes that a year after the OTPP’s first investment, FTX filed for bankruptcy.
“A U.S. bankruptcy filing indicated that, as a result of their poor internal control environment, the FTX Entities had misappropriated billions of dollars in customer deposits,” the statement said adding the board later moved to write down its entire investment to zero.
The document alleges the OTPP board “breached its obligations” to meet requirements by the plan’s administrator like standard of care, diligence and skill.
“As such, the Board breached its fiduciary duty to Class Members as beneficiaries of the Plan,” the lawsuit reads.
In October 2021, the Teachers’ pension plan invested US$75 million in FTX International, and a U.S. entity named FTX.US. Following that initial stake, the fund invested an additional US$20 million the following January. FTX collapsed later that year and by November, the Teachers’ pension plan had written down the value of its FTX stake to $0.
OTPP said the investments comprised under 0.05 per cent of its total net assets and equated to ownership of 0.4 per cent of FTX International and 0.5 per cent of FTX.US.
A statement from OTPP from November 2022 said the investments were made through the Teachers’ Venture Growth (TVG) platform, seeking small-scale exposure to an “emerging area in the financial technology sector.”
“Recent reports suggest potential fraud conducted at FTX which is deeply concerning for all parties. We fully support the efforts of regulators and others to review the risks and causes of failure for this business,” the statement said.