FTX has sued former CEO Sam Bankman-Fried and other key former executives of the now-bankrupt cryptocurrency exchange to recover more than $1 billion in funds it allegedly misappropriated.
A lawsuit filed July 20 in a United States Bankruptcy Court named former Alameda Research CEO Caroline Ellison, FTX co-founder Zixiao “Gary” Wang, former FTX engineering director Nishad Singh and Bankman-Fried as defendants.
In the lawsuit, FTX claimed that the former executives breached their fiduciary duties by allegedly misappropriating client funds on a “continuous basis to finance luxury condominiums, political and ‘charitable’ contributions, speculative investments, and other pet projects.”
Excerpt from FTX’s complaint against Bankman-Fried, Ellison and others. Source: Kroll
In addition, the lawsuit alleges that they “abused their control” over FTX and its related companies to commit “one of the largest financial frauds in history.”
The defendants created an environment in which a handful of employees had “virtually unlimited power” to oversee transfers of fiat and crypto assets, as well as giving themselves the power to hire and fire employees without “effective oversight” over how they exercised these powers, the lawsuit claims.
In addition, FTX alleged that the former executives issued more than $725 million worth of stock to themselves, “without [debtors] receive any value in exchange”.
FTX claimed that Bankman-Fried and Wang also misappropriated an additional $546 million to buy shares in the Robinhood trading platform.
The filing alleges that Ellison paid herself $28.8 million in bonuses and used $10 million of the funds to buy a stake in an artificial intelligence company.
FTX also alleged that on January 24, 2022, Bankman-Fried transferred $10 million as a “gift” from her FTX US account to her father’s account in the same exchange.
Related: Terraform Labs seeks access to FTX wallets in defense against fraud
Shortly thereafter, Bankman-Fried’s father made six transfers totaling $6.75 million to his personal accounts at Morgan Stanley and TD Ameritrade, the document states. FTX claimed that this “gift” is being used to fund Bankman-Fried’s legal defense.
FTX said many of the alleged fraudulent transfers occurred while the exchange was insolvent, something it said the defendants were well aware of. While FTX initially banned accounts with a negative balance, Bankman-Fried allegedly ordered its associates to modify the exchange’s code.
“In or about July 2019, Bankman-Fried directed one or more of his co-conspirators or persons working under his command to modify the software to allow Alameda to maintain a negative balance in his account on the exchange.”
Due to this disruption, FTX was able to maintain standard operations while running “very large deficits.” By March 2022, Ellison “privately estimated that the FTX exchange was in excess of $10 billion in cash shortfalls,” the filing added.
The crypto exchange and its subsidiaries are now run by head of restructuring and CEO John Ray after it filed for Chapter 11 bankruptcy on November 11, 2022.
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This post FTX sues Sam Bankman-Fried and other former executives to recover $1B
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