Bankrupt cryptocurrency entities FTX, FTX.US, and Alameda Research have taken legal action against their former executives Sam Bankman-Fried (SBF), Nishad Singh, and Gary Wang. They are accused of spending FTX Group’s assets excessively to buy stock clearing firm Embed Financial Technologies, leading to a lawsuit seeking to recover the spent funds. This is the first formal action taken by FTX CEO John Ray against the previous management. The case was filed in the United States Bankruptcy Court for the District of Delaware.
FTX Sues SBF and His Inner Circle
The plaintiffs claim that the FTX Insiders inflated Embed’s valuation and intentionally purchased the platform for over its worth. The former management is accused of performing minimal due diligence on Embed, prioritizing speed over all else and accepting all terms proposed by Embed’s founder and CEO Michael Giles. Giles walked away with around $157 million and what the court deemed an unreasonable retention bonus.
FTX began negotiations with Embed in March 2022, and by mid-April signed a “Memorandum of Terms” that determined a $220 million enterprise value, with $75 million retained for the platform’s employees, $55 million of which went to Giles. However, when the deal was concluded in September – just weeks before FTX’s bankruptcy – the FTX Insiders spent over $248 million to acquire Embed. The plaintiffs state that although the deal took around six months, the core conditions were decided upon within two weeks.
FTX Seeks to Recover $250M
The plaintiffs accuse SBF, Singh, and Wang of causing the bankrupt entity to issue Simple Agreements for Future Equity (SAFEs), which could become common stock in a Chapter 11 bankruptcy filing. Ray has instructed his lawyers to revoke the SAFEs and recover the funds spent in the Embed acquisition. The plaintiffs additionally requested the court to instruct the defendants to bear the legal costs of the lawsuit.
In addition, the plaintiffs filed an adversary lawsuit against Embed founder and CEO Michael Giles, the employees, and former equity holders. Some previous equity holders include venture capital firms such as Y Combinator, Bain Capital Ventures, and 9Yards.