FTX Trading has filed a lawsuit against its founder, Sam Bankman-Fried, and several former executives. The lawsuit aims to recover over $1 billion that they are accused of misappropriating before the company filed for bankruptcy.
The complaint was filed in Delaware bankruptcy court and names Caroline Ellison, who oversaw Bankman-Fried’s Alameda Research hedge fund; Zixiao ‘Gary’ Wang, former FTX technology chief; and Nishad Singh, former FTX engineering director.
The Fraud Allegations
FTX accuses the defendants of consistently diverting funds for personal gain, financing lavish condominiums, making political contributions, indulging in speculative investments, and funding various “pet projects.” The exchange has labeled their actions as ‘one of the largest financial frauds in history.’
The fraudulent transfers occurred from February 2020, to November 2022, during which FTX filed for Chapter 11 protection. FTX believes that these transfers can be nullified or “avoided” under the U.S. Bankruptcy Code or Delaware law.
The official case name is FTX Trading Ltd et al. v. Bankman-Fried et al., and it was filed in the District of Delaware in the United States Bankruptcy Court with case number 23-ap-50448.
FTX’s complaint highlights that the fraudulent transfers include over $725 million in equity that FTX and West Realm Shires, an entity controlled by Bankman-Fried, awarded without any valid consideration.
Furthermore, Bankman-Fried and Wang allegedly diverted $546 million to purchase shares of Robinhood Markets (HOOD.O), while Ellison reportedly used $28.8 million for personal bonuses. Shockingly, it was also revealed that Bankman-Fried’s criminal defense expenses are being funded from a $10 million “gift” he gave to his father.
FTX stressed that these transfers took place when the related entities were insolvent, and the defendants were fully aware of the situation. According to federal law, bankruptcy trustees have the authority to reverse property transfers made within two years before Chapter 11 filings, particularly if those transfers were undervalued and intended to defraud the bankruptcy estate.
Following the bankruptcy, FTX is now under the leadership of John Ray, who previously had experience managing Enron after the energy giant’s bankruptcy in 2001.
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