Crypto Exchange FTX Files Lawsuit to Recover $250 Million from its Own Executives and SBF

Three bankrupt cryptocurrency companies, namely FTX, FTX.US, and Alameda Research, have filed a lawsuit against their former executives, Sam Bankman-Fried, Nishad Singh, and Gary Wang. The three are accused of spending FTX Group’s assets nonchalantly without any proper recordkeeping on the acquisition of Embed Financial Technologies, which has led to the former’s bankruptcy. FTX CEO John Ray has taken his first legal action against the former management with this lawsuit. The case has been filed in the US Bankruptcy Court for the District of Delaware, wherein the plaintiffs look to claw back funds that were spent during Embed’s acquisition.

The plaintiffs have claimed that the former management took advantage of FTX Group’s lack of controls and recordkeeping to inflate Embed’s valuation during the acquisition process. They accuse the defendants of accepting all the negotiation terms from Michael Giles, Embed’s CEO, without performing any due diligence. As per the documents filed in court, Embed’s founder walked away with a $157 million retention bonus, considered to be an “extravagant and unwarranted retention bonus.”

The deal for Embed began around March 2022, with parties signing the “Memorandum of Terms” by April of the same year. These terms, which included a $220 million enterprise value of Embed and a $75 million retention bonus for the platform’s employees, were agreed upon. However, the deal was completed in September, a few weeks before FTX’s bankruptcy, with a total cost of over $248 million.

FTX further claims that the former management caused the bankrupt entity to issue Simple Agreements for Future Equity (SAFEs) that were convertible into common stock in the event of Chapter 11 bankruptcy filing. Ray is seeking to revoke the SAFE and recover the funds spent on Embed’s acquisition. The plaintiffs are also asking the court to order the defendants to bear the legal costs of the lawsuit.

In a separate case, the plaintiffs filed against Giles, the employees, and equity holders of Embed, including Silicon Valley venture capital firms like Y Combinator, Bain Capital Ventures, and 9Yards.

It is worth noting that these reforms have been rewritten and do not link towards, the original source.

J-S Tremblay
About the author - J-S Tremblay

I've been involved in the cryptocurrency world since 2016 and trading since 2019. I started Moon and Lambo in 2021. I'm passionate about crypto and love to share my knowledge. I hate bankers and I hope that cryptocurrency will change the financial world for the better. View full profile...

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