Sam Bankman-Fried, founder and former CEO of cryptocurrency exchange FTX, is escorted out of the Magistrate Court building in Nassau, Bahamas December 21, 2022. REUTERS/Marco Bello/File Photo
FTX Trading sued founder Sam Bankman-Fried and other former executives of the cryptocurrency exchange on Thursday, seeking to recover more than $1 billion they allegedly embezzled before FTX filed for bankruptcy.
The lawsuit filed in Delaware bankruptcy court also names as defendants Caroline Ellison, who ran Bankman-Fried’s Alameda Research hedge fund; former FTX chief technology officer Zixiao “Gary” Wang; and former FTX engineering director Nishad Singh.
FTX said the defendants continually embezzled funds to finance luxury condos, 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 either the US bankruptcy code or Delaware law, FTX said.
A Bankman-Fried spokesman declined to comment. Lawyers for the other defendants did not immediately respond to requests for comment.
FTX is now run by John Ray, who helped run Enron after the energy trader’s bankruptcy in 2001.
US prosecutors have called Bankman-Fried the mastermind of a fraud that led to the collapse of FTX and included the misappropriation of billions of dollars of client funds.
Bankman-Fried has pleaded not guilty to various criminal charges. Ellison, Wang and Singh pleaded guilty and agreed to cooperate with prosecutors.
According to Thursday’s complaint, the fraudulent transfers included more than $725 million of shares that FTX and West Realm Shires, an entity controlled by Bankman-Fried, gave away “without receiving any value in return.”
FTX said Bankman-Fried and Wang also misappropriated $546 million to buy Robinhood Markets shares, while Ellison used $28.8 million to pay himself bonuses.
He also said that part of Bankman-Fried’s criminal defense is funded by a $10 million “gift” he gave to his father.
“The transfers were made when (the FTX-related entities) were insolvent and the defendants knew about it,” FTX said.
Federal law allows bankruptcy trustees to prevent property transfers made in the two years prior to Chapter 11 filings, if the transfers are made for less than its value and with the 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 in the same court, No. 22-bk-11068.
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