FTX exchange has filed a lawsuit against its former executives, accusing them of engaging in fraudulent transactions surpassing $1 billion. The lawsuit, filed in a United States Bankruptcy Court on July 20, implicates FTX co-founder and CEO Sam Bankman-Fried (SBF), co-founder and CTO Gary Wang, former FTX engineering director Nishad Singh, and former Alameda Research CEO Caroline Ellison.
FTX’s complaint alleges that the former executives breached their fiduciary duties by conducting a series of fraudulent transfers that personally benefitted them while offering no value to FTX or its customers.
The accused individuals are said to have used customer funds to finance luxury condominiums, political and so-called “charitable” contributions, speculative investments, and personal pet projects.
Furthermore, the lawsuit claims that the defendants created an environment within FTX where a small group of employees possessed vast powers to oversee transfers of fiat and cryptocurrency assets. These same individuals allegedly had the ability to hire and fire employees without any meaningful oversight.
Among the specific allegations in the filing is the issuance of over $725 million worth of equity to the defendants themselves, without any corresponding value provided to the debtors.
The lawsuit also claims that Bankman-Fried and Wang misappropriated an additional $546 million to invest in shares of the trading platform Robinhood.
Caroline Ellison, one of the defendants, has been accused of paying herself $28.8 million in bonuses, with $10 million of those funds allegedly being used to purchase a stake in an artificial intelligence company.
The lawsuit also details a controversial “gift” transfer of $10 million made by Bankman-Fried from his FTX US account to his father’s account on the same exchange.
FTX claims that this transfer allowed the company to maintain standard operations while running significant deficits. By March 2022, Ellison purportedly estimated a cash deficit alone of over $10 billion for the FTX exchange.
These allegations have serious implications for FTX and the accused former executives, and the legal proceedings will likely be closely monitored by the cryptocurrency and financial communities.