FTX, the now-defunct cryptocurrency exchange, has initiated a legal action against its former CEO Sam Bankman-Fried and other key executives, seeking to recover over $1 billion in funds allegedly misused. The lawsuit, led by restructuring expert John Ray and the new executive team of FTX, implicates former Alameda Research CEO Caroline Ellison, FTX co-founder Gary Wang, former FTX engineering director Nishad Singh, and Bankman-Fried.
The complaint accuses the former executives of FTX of breaching their fiduciary duties by misappropriating customer funds for personal and speculative investments, including luxury condominiums, political and ‘charitable’ contributions, and other ventures. One such instance highlighted in the lawsuit is Bankman-Fried’s $10 million gift to his father, legal scholar Joe Bankman, which was allegedly transferred from FTX to Bankman-Fried’s personal accounts in early 2022.
The lawsuit also alleges that Bankman-Fried and Wang used customer funds to purchase $546 million worth of shares in the trading platform Robinhood. These shares have since become a point of contention, with multiple entities, including the US Department of Justice, claiming ownership.
The lawsuit further alleges that Ellison paid herself $28.8 million in bonuses and used $10 million of the funds to invest in an artificial intelligence company. The complaint asserts that many of these alleged fraudulent transfers occurred while the exchange was insolvent, with Bankman-Fried allegedly directing his associates to modify the exchange’s code to allow for negative balances in accounts.
This lawsuit represents a new phase in Ray’s efforts to recover assets to repay creditors of the crypto exchange. FTX lawyers have also recently sought the recovery of $323.5 million from the leadership of FTX Europe for allegedly using funds from the crypto exchange to acquire Swiss company DAAG without proper due diligence. The company has also filed a complaint asking for the return of the $700 million transferred to K5 entities by its founder Bankman-Fried in 2022.
Despite these challenges, FTX has made significant progress in securing assets, having recovered as much as $7 billion in liquid assets so far. The exchange owed customers approximately $8.7 billion when it declared bankruptcy last year.
