FTX Trading has taken legal action against its founder, Sam Bankman-Fried, and other former executives of the cryptocurrency exchange. The lawsuit aims to recover more than $1 billion, which they allegedly misappropriated before FTX’s bankruptcy.
The complaint, filed in a Delaware bankruptcy court, also includes Caroline Ellison, who led Bankman-Fried’s Alameda Research hedge fund, former FTX technology chief Zixiao “Gary” Wang, and former FTX engineering director Nishad Singh as defendants.
According to FTX, the defendants were involved in continuous misappropriation of funds to finance various personal projects, such as luxury condominiums, political contributions, and speculative investments, leading to what FTX describes as “one of the largest financial frauds in history.”
The fraudulent transfers are said to have occurred between February 2020 and November 2022, around the time when FTX filed for Chapter 11 protection. FTX claims that these transfers can be undone under the U.S. bankruptcy code or Delaware law.
FTX is now under the leadership of John Ray, who previously managed Enron after its 2001 bankruptcy.
U.S. prosecutors have accused Bankman-Fried of masterminding the fraud that led to FTX’s collapse, involving the misappropriation of billions of dollars in customer funds. Bankman-Fried has pleaded not guilty to criminal charges, while Ellison, Wang, and Singh have pleaded guilty and agreed to cooperate with prosecutors.
FTX alleges that the fraudulent transfers involved over $725 million of equity awarded by FTX and West Realm Shires, an entity controlled by Bankman-Fried, without receiving any value in return. It also claims that Bankman-Fried and Wang misappropriated $546 million to purchase shares of Robinhood Markets, while Ellison used $28.8 million for her own bonuses. Furthermore, some of Bankman-Fried’s criminal defense is said to be funded from a $10 million “gift” he gave to his father.
FTX asserts that these transfers were made when the related entities were already insolvent, and the defendants were aware of it. Under federal law, bankruptcy trustees can avoid property transfers made in the two years before Chapter 11 filings if they were made for less than their value and with the intent to defraud a bankruptcy estate.
The case is identified as FTX Trading Ltd et al v Bankman-Fried et al, U.S. Bankruptcy Court, District of Delaware, No. 23-ap-50448, with the main bankruptcy case being In re FTX Trading Ltd et al in the same court, No. 22-bk-11068.