July 20 (Portal) – FTX Trading on Thursday sued founder Sam Bankman-Fried and other former cryptocurrency exchange executives to recover more than $1 billion they allegedly embezzled before FTX went bankrupt.
The lawsuit, filed in Delaware bankruptcy court, also names Caroline Ellison, who ran Bankman-Fried’s Alameda Research hedge fund, as a defendant; former FTX Chief Technology Officer Zixiao “Gary” Wang; and former FTX Technical Director Nishad Singh.
FTX said the defendants continually embezzled funds to fund luxury condominiums, political donations, 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 reversed — or “avoided,” under US bankruptcy law or Delaware law, FTX said.
A spokesman for Bankman-Fried declined to comment. Attorneys for the other defendants did not immediately respond to requests for comment.
FTX is now led by John Ray, who helped run Enron after the energy trader’s bankruptcy in 2001.
US prosecutors have named Bankman-Fried the mastermind of a scam that led to the collapse of FTX, including the embezzlement of billions of dollars in customer funds.
Bankman-Fried has pleaded not guilty to multiple criminal charges. Ellison, Wang and Singh have pleaded guilty and agreed to cooperate with prosecutors.
According to Thursday’s complaint, the fraudulent transfers included more than $725 million in equity given “for no value” by FTX and West Realm Shires, a company controlled by Bankman-Fried.
According to FTX, Bankman-Fried and Wang also misused $546 million to buy shares in Robinhood Markets (HOOD.O), while Ellison used $28.8 million to cash out bonuses.
It also said that part of Bankman-Fried’s criminal defense will be funded from a $10 million “gift” he gave his father.
“The transfers occurred when[FTX affiliates]were insolvent and the defendants were aware of it,” FTX said.
Federal law permits bankruptcy trustees to avoid property transfers made in the two years prior to Chapter 11 filing if the transfers are made at a price less than their value and with intent to defraud a bankruptcy estate.
The case is FTX Trading Ltd et al v Bankman-Fried et al, US Bankruptcy Court, District of Delaware, No. 23-ap-50448. The main bankruptcy case is In re FTX Trading Ltd et al. at the same court, no. 22-bk-11068.
Reporting by Jonathan Stamp in New York; Additional reporting by Mike Scarcella; Edited by Leslie Adler
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