FTX has gone after its former CEO and Founder, Sam Bankman-Fried and some other former notable executives of the now-bankrupt company in a bid to recover over $1 billion that was allegedly misappropriated by the team.
In a Thursday complaint filed in a United States Bankruptcy Court where SBF, former Alameda Research CEO Caroline Ellison, FTX co-founder Zixiao “Gary” Wang, and former FTX engineering director Nishad Singh are defendants, FTX claimed that the former executives breached their fiduciary duties by allegedly misappropriating customer funds on a:
“continuous basis to finance luxury condominiums, political and ‘charitable’ contributions, speculative investments and other pet projects.”
Also, the lawsuit alleged that:
“They abused their control over FTX and its related companies to commit one of the largest financial frauds in history.”
The suit further noted that the former executives issued more than $725 million worth of equity to themselves “without [debtors] receiving any value in exchange”, and SBF and Wang misappropriated an additional $546 million to purchase shares in the trading platform Robinhood.
It was also alleged that Ellison paid herself $28.8 million in bonuses and used $10 million of the funds to purchase a stake in an artificial intelligence company.
SBF, too on January 24, 2022, transferred $10 million as a “gift” from his FTX US account to his father’s account on the same exchange, and shortly after that, SBF’s father made six transfers totalling $6.75 million to his personal accounts at Morgan Stanley and TD Ameritrade.
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The court filing asserted that the “gift” is currently being used to fund SBF’s legal defence and many of the alleged fraudulent transfers occurred while the exchange was insolvent, something it said the defendants were aware of.
Lastly, SBF was said to have directed his associates to modify the exchange’s code even though FTX initially prohibited accounts carrying a negative balance. The filing says:
“In or around July 2019, Bankman-Fried directed one or more of his co-conspirators or individuals working at their behest to modify the software to permit Alameda to maintain a negative balance in its account on the exchange.”
With this fraudulent alteration, the company could maintain standard operations while running “very large deficits”, and by March 2022, Ellison “privately estimated that the FTX exchange had a cash deficit alone of more than $10 billion.”
All these are expository of the grand scheme fraud that was going on behind the scenes at FTX.
FTX wants to recover donations
On Wednesday, FTX filed a suit to return $71.6 million in allegedly commingled corporate and customer funds related to investments and donations to life sciences companies.
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The defendants in the suit are life sciences companies, the FTX Foundation philanthropic organisation, the Latona Biosciences Group, SBF, FTX Foundation head Nicholas Beckstead and Latona head Ross Rheingans-Yoo.
The suit claims that the FTX Foundation and Latona donated funds to six life sciences companies for the personal benefit of SBF and Rheingans-Yoo and without any benefit to Alameda Research or FTX.
The investments in the life sciences companies were allegedly made without due diligence or independent valuation. According to the suit:
“Each of these transfers was made with the intent to hinder, delay, or defraud present or future creditors, a fact known by the FTX Foundation, Latona, and Bankman-Fried.
“Bankman-Fried in fact pursued these transactions because he believed that doing so would generate goodwill and amass political capital and influence for himself.”
Bottomline
FTX and its subsidiaries, which are now headed by new management headed by restructuring chief and CEO John Ray, have been aggressively pursuing misappropriated customer funds.
After it filed for Chapter 11 bankruptcy on November 11, 2022, recovering charitable donations, misappropriated funds, and fraudulent payments has been paramount.
How far this will go in the exchange’s journey to recovery remains to be seen.
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