FTX Trading has filed a lawsuit against its founder, Sam Bankman-Fried, and other former executives of the cryptocurrency exchange. The company is seeking to recover over US$1 billion that was allegedly misappropriated before FTX went bankrupt. The complaint, which was filed in Delaware bankruptcy court, also names Caroline Ellison, the former leader of Bankman-Fried’s Alameda Research hedge fund, Zixiao “Gary” Wang, the former FTX technology chief, and Nishad Singh, the former FTX engineering director, as defendants. According to FTX, the defendants used the misappropriated funds for personal luxury expenses, political contributions, speculative investments, and other personal projects. FTX claims that this constitutes one of the largest financial frauds in history. The alleged fraudulent transfers took place between February 2020 and November 2022, and FTX believes they can be undone under the U.S. bankruptcy code or Delaware law.
FTX is now under the leadership of John Ray, who previously helped manage Enron after its bankruptcy in 2001. U.S. prosecutors have referred to Bankman-Fried as the mastermind behind the fraud that led to FTX’s collapse, including the misappropriation of billions of dollars of customer funds. Bankman-Fried has pleaded not guilty to the criminal charges, while Ellison, Wang, and Singh have pleaded guilty and agreed to cooperate with prosecutors.
FTX alleges that Bankman-Fried and Wang misappropriated US$546 million to purchase shares of Robinhood Markets, while Ellison used US$28.8 million for her own bonuses. Additionally, FTX claims that Bankman-Fried’s criminal defense is being funded by a US$10 million “gift” he gave to his father.
FTX argues that the fraudulent transfers were made while the company was insolvent and that the defendants were aware of this. Federal law allows bankruptcy trustees to avoid property transfers made within two years before Chapter 11 filings if they are made for less than their value and with the intent to defraud a bankruptcy estate.
The case is titled FTX Trading Ltd et al v Bankman-Fried et al, filed in the U.S. Bankruptcy Court, District of Delaware, under No. 23-ap-50448. The main bankruptcy case is In re FTX Trading Ltd et al in the same court, under No. 22-bk-11068.
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