FTX Sues Bankman-Fried Over $220 Million Deal
- Bankman-Fried and former executives at FTX paid little attention to records and due diligence, which led to the company’s collapse.
- The lawsuit seeks to recover $236.8 million from Giles and Embed executives.
Bankrupt crypto trading platform FTX is suing its former CEO Sam Bankman-Fried, co-founder Zixiao Wang, and former executive Nishad Singh to recoup the more than $220 million it spent to acquire the stock trading platform Embed. The lawsuit claims that former executives failed to conduct any due diligence before purchasing the largely ineffective, buggy software platform.
The three lawsuits, which were filed on Wednesday in U.S. Bankruptcy Court in Delaware, also targeted some Embed executives, such as founder Michael Giles, and some shareholders. FTX’s leadership accused Bankman-Fried and other executives of misappropriating the exchange’s funds for their acquisition. The lawsuit claims that Bankman-Fried and other insiders took “advantage of the FTX Group’s lack of controls and recordkeeping to perpetrate a massive fraud.”
FTX lawyers claimed the former leadership concluded the purchase despite knowing that the exchange was insolvent at the time. The lawyers additionally stated that FTX insiders created false records to hide Alameda Research’s contribution to financing the Embed purchase, alleging that funds had been exchanged between both companies rather than from Bankman-Fried, Singh, and Wang as had been represented.
Since filing for bankruptcy in November, FTX’s new leadership has been working to recover assets to pay back customers. Interestingly, U.S. law permits debtors to recoup payments made under specific conditions prior to filing for bankruptcy and use those funds to settle creditors.
FTX’s downfall wiped off billions of customer funds. As part of its plans to raise funds, FTX attempted to sell Embed. However, Giles made the highest offer, a meager $1 million. FTX lawyers claimed that the bid shows that the funds used to purchase Embed were “wildly inflated relative to the company’s fair value, which Giles well knew.” FTX’s lawyers claimed that Giles had “personally received approximately $157 million in connection with the acquisition.”
“The bidders had figured out what the FTX Group and FTX Insiders did not bother to assess prior to the Embed acquisition, namely, that Embed’s vaunted software platform was essentially worthless,” FTX lawyers wrote in the lawsuit.
The lawsuit claimed that insiders at Embed expressed disbelief that FTX spent so much for their company after a brief meeting with Giles and were shocked at the exchange’s hasty approach to the deal.