FTX representatives filed a lawsuit against former top executives of the bankrupt crypto exchange and its subsidiary, alleging that they not only misappropriated customer funds but also pulled off one of the largest financial frauds in history.
In the lawsuit filed in Delaware Bankruptcy Court on July 20, representatives of FTX required the court to hold the former executives of Alameda Research and FTX accountable for their wrongdoing and to return over $1 billion in stolen customer funds.
Defendants named in the suit included:
- Sam Bankman-Fried, Co-Founder of Alameda Research and FTX and ex-CEO of the crypto exchange;
- Caroline Ellison, ex-CEO of Alameda Research;
- Zixiao “Gary” Wang, Co-Founder of FTX;
- Nishad Singh, ex-CTO of FTX.
The plaintiff alleges that the former executives violated their duties by misappropriating client money to fund luxury apartments, make political and charitable contributions, engage in speculative investments, and pursue other personal projects. The lawsuit also claims they abused their control over FTX and related companies.
Among the key allegations in the lawsuit are:
- Bankman-Fried and Wang misappropriated $546 million to buy shares of the trading platform Robinhood;
- Ellison paid herself $28.8 million in bonuses and used $10 million of user funds to buy a stake in an artificial intelligence company;
- Bankman-Fried instructed his employees to change the exchange’s code to enable negative account balances;
- Bankman-Fried, Wang, and Singh irrevocably borrowed more than $250 million from Alameda Research through fraudulent promissory notes;
- Bankman-Fried transferred $10 million from his father’s FTX US account and is using the funds to pay defense attorneys.
The suit also alleges that many of the fraudulent transfers were made at a time when the exchange was unable to meet its obligations, which the plaintiff believes the executives were well aware of. The scam by former FTX and Alameda Research executives is called “one of the largest financial frauds in history” in the suit and was pulled off because:
- the defendants were friends;
- the defendants were insiders;
- transfers of client funds were concealed;
- the defendants deleted large amounts of information about their asset speculation;
- the value of the fees received by the defendants didn’t correspond to the reasonable value of the transferred assets.
The collapse of the cryptocurrency exchange FTX provoked a series of events that affected the entire cryptocurrency market. In particular, over 130 companies united in the FTX Group were forced to start bankruptcy proceedings, which had economic consequences for many crypto companies. Charges against Sam Bankman-Fried and other top managers of FTX were brought by various U.S. regulatory authorities.
