FTX Leadership Sues Sam Bankman-Fried Over $220M Deal Made Before Bankruptcy
FTX lawyers are suing former CEO Sam Bankman-Fried, co-founder Zixiao Wang and former senior executive Nishad Singh over a lack of due diligence in their $220 million acquisition of stock clearing platform Embed.
According to a filing dated May 17, FTX has paid $220 million to acquire Embed through its US subsidiary, saying the platform has “conducted little to no due diligence.” After FTX filed for bankruptcy, the judge in charge of the proceedings approved the sale of Embed and other FTX assets, but the platform's top bidder offered only $1 million, according to FTX's lawyers:
"The bidders have figured out what FTX Group and FTX Insiders didn't bother to evaluate before buying Embed, which is that Embed's vaunted software platform is basically worthless." While 12 entities submitted non-binding letters of intent the largest of which was at $78 million all but one declined to submit a final bid after conducting more thorough due diligence: Embed founder and former CEO Michael Giles.
According to FTX's lawyers, Giles "personally received an acquisition fee of approximately $157 million," but his eventual bid to regain ownership of Embed was a paltry $1 million, which may be reduced by the time the deal closes. The lawyers also allege that FTX Insiders used misappropriate client funds to facilitate the purchase of Embed, taking advantage of "FTX Group's lack of controls and record keeping to commit massive fraud," while fully aware that the company was insolvent when the deal was completed.
The attorneys further allege that the misleading records were created to obscure Alameda Research's role in financing the Embed acquisition, claiming that funds were transferred between FTX entities rather than from Bankman-Fried, Singh and Wang as they claimed. FTX wants these transactions to be flagged as "avoidable fraudulent transfers and obligations, and/or preferences," and furthermore, the defenders' claims are not allowed until FTX can recover funds lost through avoidable transfers.
FTX filed for bankruptcy protection on November 11, 2022, and since then, its new leadership has focused on recovering funds to pay customers and creditors. It has also been considering a possible restart of the exchange.
