FTX files lawsuit against former CEO, seeking to recoup more than $1 billion, and alleging funds were used to cover his legal defence
Former crypto multi-billionaire Sam Bankman-Fried is facing more legal headaches this week, after a new lawsuit from his former crypto exchange FTX, plus fresh allegations from US prosecutors.
Reuters reported that on Thursday FTX Trading sued its founder Bankman-Fried and other former executives of the cryptocurrency exchange, seeking to recoup more than $1 billion they alleged was misappropriated before FTX went bankrupt.
To make matters worse, FTX allege the stolen funds have been used to fund some of Bankman-Fried’s criminal legal defence via a $10 million “gift” he gave his father, who is a distinguished legal scholar Joe Bankman.
Both Bankman-Fried’s parents are Stanford Law School professors.
He resides under strict supervision at his parents’ home in Palo Alto, California.
Bankman-Fried has pleaded not guilty to eight federal fraud and conspiracy charges over his role in the collapse of the FTX crypto exchange, when a multi-billion dollar hole was found in its balance sheet.
He has plead not guilty to those additional charges.
In total, Bankman-Fried now faces a total of 13 criminal charges, and if found guilty, could be sentenced to over 115 years in prison.
His trial is slated for 2 October 2023.
Now according to the Reuters report, FTX Trading has filed a complaint in the Delaware bankruptcy court, seeking to recoup more than $1 billion.
The lawsuit names Sam Bankman-Fried, as well as defendants Caroline Ellison, who led Bankman-Fried’s Alameda Research hedge fund and was Bankman-Fried’s former girlfriend; former FTX technology chief Zixiao “Gary” Wang; and former FTX engineering director Nishad Singh.
Reuters quoted FTX as alleging that the defendants continually misappropriated funds to finance luxury condominiums, political contributions, speculative investments and other “pet projects,” while committing “one of the largest financial frauds in history.”
The alleged fraudulent transfers occurred between February 2020 and November 2022 when FTX filed for Chapter 11 protection, and can be undone – or “avoided” – under the US bankruptcy code or Delaware law, FTX said.
According to Thursday’s complaint, the fraudulent transfers included more than $725 million of equity that FTX and West Realm Shires, an entity that Bankman-Fried controlled, awarded “without receiving any value in exchange.”
FTX alleged Bankman-Fried and Wang also misappropriated $546 million to buy shares of Robinhood Markets, while Ellison used $28.8 million to pay herself bonuses.
It also said some of Bankman-Fried’s criminal defence is being funded from a $10 million “gift” he gave his father.
“The transfers were made when (FTX-related entities) were insolvent, and defendants knew it,” FTX alleged.
A spokesman for Bankman-Fried declined to comment, Reuters reported. Lawyers for the other defendants did not immediately respond to requests for comment.
FTX is now led by John Ray, who helped manage Enron after the energy trader’s 2001 bankruptcy.
FTX had previously alleged in court filings that Sam Bankman-Fried and five of his inner circle (including company founders and key staff) transferred a total of $3.2bn into their personal accounts via “payments and loans”.
Indeed, those filings alleged that personal accounts belonging to Sam Bankman-Fried received $2.2bn, made chiefly from the Alameda Research hedge fund.
The alleged payments were as follows:
- $2.2 billion to Sam Bankman-Fried;
- $587 million to Nishad Singh;
- $246 million to Zixiao “Gary” Wang;
- $87 million to Ryan Salame;
- $25 million to John Samuel Trabucco;
- $6 million to Caroline Ellison
Meanwhile US prosecutors have accused Bankman-Fried of witness tampering and asked a federal judge to issue an order that would bar the former billionaire and other parties from making public statements likely to interfere with a fair trial.
According to Reuters, the prosecutors wrote to US District Judge Lewis Kaplan on Thursday referencing a New York Times article titled “Inside the Private Writings of Caroline Ellison, Star Witness in the FTX Case.”
The article reported excerpts from Ellison’s personal Google documents from before the collapse of FTX in which she spoke about being “pretty unhappy and overwhelmed” with her job and feeling “hurt/rejected” from her breakup with Bankman-Fried.
US prosecutors allege it was apparent Bankman-Fried shared documents with the New York Times and that his lawyers have since confirmed to the government that he met with one of the article’s authors in person and shared documents “that were not part of the government’s discovery material.”
US prosecutors argued that by sharing these documents, Bankman-Fried was trying to malign Ellison’s credibility, and that such conduct could chill witnesses from testifying and taint the jury pool.
“By selectively sharing certain private documents with the New York Times, the defendant is attempting to discredit a witness, cast Ellison in a poor light, and advance his defense through the press and outside the constraints of the courtroom and rules of evidence: that Ellison was a jilted lover who perpetrated these crimes alone,” US prosecutors were quoted by Reuters as writing in the letter.