FTX sues Sam Bankman-Fried and other former executives to get $1B back

FTX has sued former CEO Sam Bankman-Fried and other former key executives of the now-defunct crypto exchange to recover more than $1 billion in allegedly misappropriated funds.

July 20 Complaint Former Alameda Research CEO Carolyn Ellison, FTX co-founder Zixiao “Gary” Wang, former FTX engineering director Nishad Singh and Bankman-Fried have been named as defendants in the United States bankruptcy court.

In the lawsuit, FTX claimed that the former executives “breached their fiduciary duties by misappropriating client funds on a persistent basis to finance luxury condominiums, political and ‘charitable’ contributions, speculative investments and other major projects.”

Additionally, the lawsuit alleged that he “abused his control” over FTX and its related companies to perpetrate “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 the transfer of fiat and crypto assets, as well as the power to hire and fire employees without “any effective oversight” over how they used these powers. Claimed in the lawsuit.

Additionally, FTX alleged that the former executives themselves issued equity worth more than $725 million “without (the debtors) receiving anything of value in return.”

FTX claimed that Bankman-Fried and Wang also misappropriated an additional $546 million to buy shares in the trading platform Robinhood.

The filing alleged that Ellison paid himself $28.8 million in bonuses and used $10 million to buy a stake in an artificial intelligence company.

FTX also alleges that on January 24, 2022, Bankman-Fried transferred $10 million as a “gift” from her FTX US account to her father’s account on the same exchange.

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Shortly after, Bankman-Fried’s father made six transfers totaling $6.75 million to his personal accounts at Morgan Stanley and TD Ameritrade, the filing claims. FTX claimed that this “gift” was being used for Bankman-Fried’s legal defense.

FTX said that many of the alleged fraudulent transfers occurred while the exchange was insolvent, of which the defendants were well aware. While FTX initially banned accounts with negative balances, Bankman-Fried reportedly instructed his associates to modify the exchange’s code.

“In or around July 2019, Bankman-Fried directed one or more of his co-conspirators or persons acting at his behest to modify the software to allow Almeida to maintain a negative balance in his account on the Exchange.”

Due to this change, FTX was able to maintain standard operations despite “very large losses”. The filing states that by March 2022, Ellison had “privately estimated that the FTX exchange’s cash losses alone exceeded $10 billion.”

The crypto exchange and its subsidiaries are now being led by restructuring head and CEO John Ray after it filed for Chapter 11 bankruptcy on November 11, 2022.

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