FTX files lawsuit against Bankman-Fried, top executives for ‘misappropriating’ customer funds

Months after the cryptocurrency exchange hit the headlines over a liquidity crisis and subsequently filed for bankruptcy, FTX Ltd has filed a lawsuit against its former CEO Sam Bankman-Fried and other key executives for allegedly “misappropriating customer funds”. 

Filed in a United States Bankruptcy Court on July 20, the lawsuit aims to recover over $1 billion in customer funds. Apart from Bankman-Fried, the other key executives named in the lawsuit were FTX co-founder  Zixiao “Gary” Wang, the exchange’s former engineering director Nishad Singh and former Alameda Research CEO Caroline Ellison. 

According to the lawsuit, the defendants continuously violated their fiduciary duties by allegedly swindling customer funds. The exchange has claimed that the top bosses used these funds for political and so-called “charitable” donations, for purchasing luxury apartments, speculative investments, and personal flagship projects.

Bankman-Fried, key executives “abused authority”: FTX

Bankman-Fried and the other executives have been accused of “abusing” their authority at FTX and its related companies on multiple occasions which ultimately led to one of biggest “financial frauds” in history. 

The FTX scandal had been all over cryptocurrency news in India and had dominated discussions over the need for regulatory action against decentralized exchanges for days.

The defendants have been accused of creating an environment where a limited number of employees got “excessive power” over transfers of fiat and crypto assets. The executives are also believed to have recruited and fired employees without proper consideration. 

In the lawsuit, FTX has made serious allegations against its executives for issuing equity valued at more than $275 million to themselves without offering debtors any value in returns.

On the other hand, Ellison has been accused of having paid herself bonuses worth $28.8 million. Of the amount, she used $10 million to invest in an artificial intelligence company.

Funds used to buy Robinhood shares, ‘gift’ to finance legal defense

The crypto exchange has accused co-founders Bankman-Fried and Wang of misappropriating another $546 million to buy shares of trading platform Robinhood. The charges against Bankman-Fried only get serious. He has been accused of transferring a sum of $10 million from his FTX US account to his father’s account. His father’s account was also on the same exchange and the transfer was categorised as a “gift” . 

Subsequently, Bankman-Fried’s father made multiple transfers worth $6.75 million to personal accounts in TD Ameritrade and Morgan Stanley. FTX claims that the “gift” was being used for financing Bankman-Fried’s legal defense. 

FTX has also claimed that the defendants were aware of several fraudulent transfers that were made even when the exchange had filed for bankruptcy.

As per its initial rules, FTX used to prohibit accounts from trading if they had a negative balance. However, Bankman-Fried later allegedly asked his associates to tweak the exchange’s code which allowed FTX to continue operations despite carrying “very large deficits”. By March 2022, Ellison estimated that the FYTX exchange was reeling under deficits of over $10 billion.

Currently, FIX and its subsidiaries are being restructured under CEO John Ray, after the exchange became insolvent in November 2022.

About FTX

Launched in May 2019, FTX was co-founded by Bankman-Fried and Wang, who were both Massachusetts Institute of Technology graduates. While Wang was a former Google employee, Bankman-Fried had a background in ETF trading. In October 2021, FTX was valued at $25 billion after raising funding from Singapore government-owned investment firm Temasek. Its valuation peaked in January 2022 at $32 billion after the exchange raised $400 million from investors.

Before being mired in controversy, FTX was a leading source of information about live cryptocurrency prices and the Top Ten cryptocurrencies. Users could also access information on various crypto-related subjects like how to invest in cryptocurrency in India and cryptocurrency tax in India on the platform.

Disclaimer: This article was created for informational purposes only and should not be taken as investment advice. An asset’s past performance does not predict its future returns. Before making an investment, please conduct your own research, as digital assets like cryptocurrencies are highly risky and volatile financial instruments.

Author: Puskar Pande

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