FTX leadership sues Sam Bankman-Fried over $220M deal made prior to bankruptcy
When FTX tried to sell the platform after filing for bankruptcy, the top bid was for just $1 million, representing a 99.5% decline in value.
FTX lawyers are suing former CEO Sam Bankman-Fried, co-founder Zixiao Wang, and former senior executive Nishad Singh over the $220 million acquisition of stock-clearing platform Embed, alleging lack of due diligence.
According to a May 17 filing, FTX had paid $220 million to acquire Embed through its United States subsidiary after having allegedly “performed almost no due diligence” on the platform.
After FTX filed for bankruptcy, the judge in charge of the proceedings approved the sales of Embed and other assets of FTX, but the top bidder for the platform offered just $1 million, with FTX’s lawyers stating:
“The bidders had figured out what the FTX Group and FTX Insiders did not bother to assess prior to the Embed acquisition, namely, that Embed’s vaunted software platform was essentially worthless.”
While 12 entities had submitted non-binding indications of interest — the largest of which was $78 million — all but one declined to submit a final bid after conducting more comprehensive due diligence: Embed’s founder and former CEO, Michael Giles.
According to FTX’s lawyers, Giles had “personally received approximately $157 million in connection with the acquisition,” but his final bid to regain ownership of Embed was a paltry $1 million, subject to reductions at closing.
Related: Voyager bankruptcy plan approved, customers may recover 35.7% of claims initially
The lawyers additionally accused the FTX insiders of taking “advantage of the FTX Group’s lack of controls and recordkeeping to perpetrate a massive fraud” by using misappropriated customer funds to facilitate the purchase of Embed, while fully aware that the company was insolvent when finalizing the deal.
The lawyers further alleged that misleading records were created to obscure Alameda Research’s role in funding the Embed acquisition, claiming funds had been transferred between FTX entities, not from Bankman-Fried, Singh and Wang as claimed.
FTX wants the transactions to be labeled as “avoidable fraudulent transfers and obligations, and/or preferences,” in addition to having claims made by the defendants disallowed until FTX can recoup the funds lost through avoidable transfers.
FTX filed for bankruptcy on November 11, 2022, and since then, its new leadership has been focused on clawing back funds to repay customers and creditors. It has also been considering a possible relaunch of the exchange.
Magazine: Ordinals turned Bitcoin into a worse version of Ethereum — Can we fix it?