FTX Lawyers Sue Bankman-Fried Over Fintech They Now Say ‘Worthless’

The bankruptcy saga of FTX, Alameda Research, and an associated company led by Sam Bankman-Fried has changed legally. The current leadership of FTX has filed a lawsuit in the US Bankruptcy Court, alleging fraudulent activities and overpriced acquisitions that ultimately led to the exchange’s collapse.

The lawsuit revolves around Alameda Research’s acquisition of the Embed share clearing platform. FTX leadership claims that Bankman-Fried and other executives learned of Alameda Research’s bankruptcy when they completed the $250 million deal. According to the lawsuit, fraudulent funds from FTX customers were used for Alameda’s acquisition of Embed.

The legal action also targeted other individuals involved in the acquisition, including Gary Wang, co-founder of FTX, and Nishad Singh, a former senior executive at FTX. As well as the former FTX/Alameda chairman, the lawsuit seeks to recover funds from Michael Giles, the founder and former CEO of Embed, and the early investors who sold their shares to Bankman-Fried and associates.

It is important to note that Giles and Embed’s shareholders were not accused of any criminal wrongdoing. The lawsuit focuses on claims that Alameda was bankrupt at the time of the acquisition and that an inflated price was paid for Embed. The intent behind this legal action was to maximize payouts to FTX and Alameda’s creditors in bankruptcy proceedings.

Despite accusations of fraud and self-dealing, FTX’s bankruptcy board also argued that the deal itself was a bad decision. According to lawyers for FTX, Embed was bargained for during the bankruptcy proceedings, and is now deemed almost worthless in comparison to the price paid by Bankman-Fried and his team.

Internal messages cited in the filing express concern about Embed’s ability to handle new user accounts, indicating potential issues with the platform. The filing also stated that Embed had approximately $37 million in assets and $25,000 in profits as of March 31, 2022.

One of the focal points of the lawsuit was the $55 million retention bonus awarded to Giles, which did not require him to remain with the company after the closing of the deal. FTX’s bankruptcy representatives argued that this arrangement was unusual and that Giles received a significant amount to his equity as Embed’s largest shareholder.

Communication between Embed employees demonstrated rapid deal closings without proper due diligence. Lawyers for FTX claimed that no one wanted to buy Embed for anywhere near the price Bankman-Fried and his team paid, even after trying to sell the company months after the acquisition.

Giles himself submitted the highest bid to buy back the company for $1 million but did not respond to a request for comment. FTX’s interim leadership argued that the bidding process clearly indicated that the $220 million paid for Embed was a significant increase compared to the company’s actual value.

The lawsuit highlights the controversial acquisition of Embed and the subsequent bankruptcy of FTX. As the legal battle unfolds, the extent of the alleged fraudulent activity and the financial implications for all parties involved will become clearer.