FTX has taken legal action against its former CEO, Sam Bankman-Fried, and several other key executives from the now-bankrupt crypto exchange.
The lawsuit aims to recover more than $1 billion in allegedly misappropriated funds.
The complaint, filed in a United States Bankruptcy Court on July 20, names Caroline Ellison, former Alameda Research CEO, Zixiao “Gary” Wang, FTX co-founder, Nishad Singh, former FTX engineering director, and Bankman-Fried as defendants.
The lawsuit claims that the former executives breached their fiduciary duties by continuously misappropriating customer funds.
According to FTX, these funds were used to finance luxury condominiums, political and so-called “charitable” contributions, speculative investments, and personal pet projects.
The suit also alleges that the defendants abused their authority over FTX and related companies, leading to what is being called “one of the largest financial frauds in history.”
FTX asserts that the defendants created an environment where a select few employees had excessive power over fiat and crypto asset transfers, as well as the ability to hire and fire employees without effective oversight.
Additionally, the former executives are accused of issuing more than $725 million worth of equity to themselves without providing any value to the debtors in return.
FTX specifically accuses Bankman-Fried and Wang of misappropriating an additional $546 million to purchase shares in the trading platform Robinhood.
The filing also claims that Ellison paid herself $28.8 million in bonuses and used $10 million of those funds to invest in an artificial intelligence company.
FTX alleges that Bankman-Fried transferred $10 million as a “gift” from his FTX US account to his father’s account on the same exchange.
Shortly thereafter, Bankman-Fried’s father made several transfers totaling $6.75 million to his personal accounts at Morgan Stanley and TD Ameritrade. FTX asserts that this “gift” is being used to fund Bankman-Fried’s legal defense.
According to the lawsuit, many of the alleged fraudulent transfers occurred while the exchange was insolvent, and the defendants were well aware of this fact.
Initially, FTX prohibited accounts with a negative balance, but Bankman-Fried allegedly directed associates to modify the exchange’s code.
This alteration allowed FTX to operate normally despite carrying “very large deficits.” By March 2022, Ellison privately estimated that the FTX exchange had a cash deficit alone of more than $10 billion.
FTX and its subsidiaries are now under the leadership of restructuring chief and CEO John Ray following their Chapter 11 bankruptcy filing on November 11, 2022.
