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(Kitco News) -
Bankrupt cryptocurrency exchange FTX is suing former CEO Sam Bankman-Fried and other executives to claw back or avoid paying over $1 billion, according to a July 20 court filing.
The complaint, which was filed with the United States Bankruptcy Court on Thursday, named Bankman-Fried, FTX co-founder Gary Wang, former engineering director Nishad Singh as defendants, along with Caroline Ellison, former CEO of Alameda Research.
“This action seeks to recover damages caused by Defendants’ breaches of their fiduciary duties and to avoid and recover unlawful transfers of hundreds of millions of dollars that Defendants misappropriated from the estates of the companies and their debtors,” the complaint said.
It alleges that SBF and his inner circle “abused their control over the FTX Group to commit one of the largest financial frauds in history,” and says they “misappropriated Debtor funds on a continuous basis to finance luxury condominiums, political and ‘charitable’ contributions, speculative investments and other pet projects that inured to the benefit of Defendants rather than the Debtor entities that paid for them.”
The suit claims that “fraudulent transfers worth over a billion dollars” were made by the defendants between Feb. 2020 and Nov. 2022. “All of the transfers are avoidable under the Bankruptcy Code and/or Title 6 of the Delaware Code,” they wrote. The plaintiffs are asking the court “to disallow and equitably subordinate any and all claims filed or held by Defendants in these Chapter 11 Cases unless and until Defendants have relinquished to Plaintiffs all property that Defendants received in transfers determined by the Court to be avoidable and recoverable under the Bankruptcy Code.” They also ask that any similar transfers discovered during the course of the court proceedings be treated the same way by the court.
The filing also alleges that the defendants gave themselves over $725 million in equity “without [debtors] receiving any value in exchange,” and claims that Bankman-Fried and Wang misappropriated an additional $546 million in customer funds to purchase Robinhood shares, which have been the subject of separate legal wranglings.
The lawsuit claims that many of these transfers occurred after senior executives knew the exchange was insolvent.
In April, the new FTX management team led by John Ray issued their long-awaited interim report on the state of the exchange and Alameda Research, describing failures in critical areas including “management and governance, finance and accounting, as well as digital asset management, information security and cybersecurity.”
The report claimed that FTX “was tightly controlled by a small group of individuals who showed little interest in instituting an appropriate oversight or control framework.” They wrote that Bankman-Fried and his inner circle “stifled dissent, commingled and misused corporate and customer funds, lied to third parties about their business, joked internally about their tendency to lose track of millions of dollars in assets, and thereby caused the FTX Group to collapse as swiftly as it had grown.”
“In this regard, while the FTX Group’s failure is novel in the unprecedented scale of harm it caused in a nascent industry, many of its root causes are familiar: hubris, incompetence, and greed,” they wrote.
