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An intense legal battle has erupted between FTX, the defunct cryptocurrency exchange, and its founder Sam Bankman-Fried, as well as three other former executives. FTX is seeking to recover over $1 billion that it claims they misappropriated in the months leading up to the exchange’s collapse.
The lawsuit, initiated by FTX with guidance from a team of restructuring experts led by John Ray, targets a range of share awards, real estate acquisitions, cash transfers, and other transactions that the company maintains should be undone under bankruptcy law.
Caroline Ellison, former head of FTX’s trading arm Alameda Research, is alleged to have personally benefited from one such transaction mentioned in the complaint. She purportedly paid herself a $22.5 million bonus, a portion of which was later transferred to her personal bank account and used to invest in an artificial intelligence research-focused company.
The lawsuit also implicates Zixiao “Gary” Wang, a co-founder of FTX, and Nishad Singh, a former employee of FTX and Alameda, as recipients of illicit transfers.
It’s worth noting that Ellison, Wang, and Singh have already pleaded guilty to unrelated fraud charges. Bankman-Fried, on the other hand, has pleaded not guilty to fraud, money laundering, and campaign finance violation charges brought against him in the United States.
FTX’s lawsuit against Bankman-Fried and the former executives represents a new phase in John Ray’s endeavor to reclaim assets that he believes rightfully belong to the crypto exchange’s creditors. These include numerous individual customers who were unable to access their assets when FTX halted withdrawals last year.
The company filed for bankruptcy in November, and soon after, Ray, who oversaw the liquidation of Enron, expressed astonishment at what he called a “complete failure of corporate controls” and the absence of reliable financial information.
Many of the shortcomings identified by Ray then are now at the center of the lawsuit filed in Delaware bankruptcy court. According to the complaint, FTX entities failed to prepare any financial statements, while others relied on inadequate accounting tools like QuickBooks or a patchwork of Google documents, Slack communications, and shared drives.
Representatives for the defendants have not yet responded to requests for comment.
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