Key Takeaways
- • A plan member has sued the Ontario Teachers' Pension Plan (OTPP) in the Ontario Superior Court of Justice, alleging the board failed to conduct proper due diligence before investing US$95 million in the collapsed FTX crypto exchange.
- • The statement of claim, obtained by BNNBloomberg.ca, alleges a breach of fiduciary duty and seeks recovery of the losses from the two FTX investments.
- • OTPP's investments totaled US$95 million: US$75 million in FTX International and FTX.US in October 2021, plus US$20 million the following January, per the plaintiff's account and OTPP's own disclosures.
- • OTPP says the claim is without merit, will defend itself, and states the positions comprised under 0.05 per cent of its total net assets.
- • The allegations have not been proven in court.
Summary
A member of the Ontario Teachers' Pension Plan (OTPP) has filed a lawsuit against the plan alleging that its board did not conduct proper due diligence when investing US$95 million in FTX, the cryptocurrency exchange that later collapsed. According to a statement of claim filed with the Ontario Superior Court of Justice and obtained by BNNBloomberg.ca, the action arises from two "ill-fated investments" in FTX. The plaintiff seeks to recover the losses, which the document attributes to a "breach of its fiduciary duty."
The claim alleges that during due diligence and the investment approval process, the board "failed to obtain adequate and reliable information" about FTX's internal controls in areas including management and governance, finance and accounting, digital asset management, information security and cybersecurity. It further alleges the board failed to comply with the plan's Statement of Investment Policies and Procedures (SIPP), which requires it to weigh relevant risks related to governance factors and OTPP's responsible investing guidelines. The document states the board breached its obligations regarding the standard of care, diligence and skill required by the plan's administrator.
According to the filing, OTPP invested US$75 million in October 2021 in FTX International and FTX.US, and added US$20 million the following January. FTX filed for bankruptcy about a year after the first investment. The claim cites a U.S. bankruptcy filing indicating that FTX's weak internal control environment had allowed the misappropriation of billions of dollars in customer deposits. By November 2022, OTPP had written its FTX stake down to zero. OTPP said the positions represented under 0.05 per cent of its total net assets and equated to roughly 0.4 per cent ownership of FTX International and 0.5 per cent of FTX.US. The investments were made through its Teachers' Venture Growth (TVG) platform, which sought small-scale exposure to an "emerging area in the financial technology sector."
OTPP, in a statement to BNNBloomberg.ca, said it is aware of the claim and believes it is without merit. The pension plan said it "take[s] our responsibility for the investment of plan assets seriously" and maintains "robust due diligence on all private investments." It declined further comment given the matter is before the courts. The allegations have not been proven in court. OTPP's November 2022 statement said it fully supports regulators' efforts to review the risks and causes of FTX's failure.
The claim alleges that during due diligence and the investment approval process, the board "failed to obtain adequate and reliable information" about FTX's internal controls in areas including management and governance, finance and accounting, digital asset management, information security and cybersecurity. It further alleges the board failed to comply with the plan's Statement of Investment Policies and Procedures (SIPP), which requires it to weigh relevant risks related to governance factors and OTPP's responsible investing guidelines. The document states the board breached its obligations regarding the standard of care, diligence and skill required by the plan's administrator.
According to the filing, OTPP invested US$75 million in October 2021 in FTX International and FTX.US, and added US$20 million the following January. FTX filed for bankruptcy about a year after the first investment. The claim cites a U.S. bankruptcy filing indicating that FTX's weak internal control environment had allowed the misappropriation of billions of dollars in customer deposits. By November 2022, OTPP had written its FTX stake down to zero. OTPP said the positions represented under 0.05 per cent of its total net assets and equated to roughly 0.4 per cent ownership of FTX International and 0.5 per cent of FTX.US. The investments were made through its Teachers' Venture Growth (TVG) platform, which sought small-scale exposure to an "emerging area in the financial technology sector."
OTPP, in a statement to BNNBloomberg.ca, said it is aware of the claim and believes it is without merit. The pension plan said it "take[s] our responsibility for the investment of plan assets seriously" and maintains "robust due diligence on all private investments." It declined further comment given the matter is before the courts. The allegations have not been proven in court. OTPP's November 2022 statement said it fully supports regulators' efforts to review the risks and causes of FTX's failure.
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