FTX Sues Sam Bankman-Fried and Former Execs for $1 Billion

2023-08-03, 09:42

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## TL; DR

By suing Sam Bankman and its former executives FTX aims to recover some funds to pay the customers whose assets were frozen.

“Gary” Wang, Nishad Singh and Caroline Ellison are the other executives who are facing court trials in the United States for misappropriating customer funds.

While Ellison, Wang and Singh pleaded guilty to the charges levelled against them Bankman-Fried has pleaded innocent.

## Introduction

There has been no closure to the issue of FTX crypto exchange as there are still legal battles among some involved parties. Apart from the creditors who believe that they may get compensation for their losses, FTX has recently sued its Founder Sam Bankman-Fried (SBF) and some of its former executives. In this article we explore several issues that relate to FTX lawsuits against its former senior employees and founder.

## FTX Sues Sam Bankman- Fried,

In a move that has surprised many people, FTX has filed a lawsuit against its founder Sam Bankman-Fried, popularly known as SBF, and its former executives for misappropriating more than US$1 billion during a time the exchange was financially unstable and even after FTX bankruptcy.

Specifically, FTX has sued Samuel Bankman-Fried, its founder and former CEO, Zixiao “Gary” Wang, the former FTX technology chief, Nishad Singh, the engineering director and Caroline Ellison, the head of Alameda Research, the hedge fund. According to FTX representatives, the misappropriation of around $1 billion, at a time when the crypto exchange was struggling financially, propelled the crypto exchange into bankruptcy.

On 20 July FTX filed a lawsuit to the United States bankruptcy Court accusing the founder and the former senior leaders of breaching fiduciary duties through using customer funds for their personal benefit.

According to the lawsuit, part of the funds was used for high-risk investments, luxury accommodations as well as donations for political and charitable purposes. For that reason, FTX claims that such embezzlement of business funds has been “one of the largest financial frauds in history.”

Further to this, the company alleges that the defendants created an unhealthy corporate environment where a few employees wielded massive influence and had control over key business decisions such as the use of institutional funds. That is the reason why they were able to willy-nilly allocate crypto assets and fiat currency for dubious and personal purposes. They also had massive power on hiring employees or terminating their contracts.

## Breakdown of Misappropriated Funds

The misappropriated funds were handled by several people including Sam Bankman-Fried (SBF), Wang and Ellison. According to the filed documents the former executives misappropriated a total of $725 million worth of FTX equity for their personal benefit without providing any equivalent value to the organization or its sister companies.

The complainant has said that Bankman-Fried lived a luxurious life and carried out various personal projects using the FTX funds. Specifically, Bankman-Fried and Ellison used $546 million for purchasing personal assets. For instance, SBF used his share to purchase Robinhood Markets stock while Ellison got a bonus worth $28.8 million. He also invested $10 million in his artificial intelligence business.

Again, FTX alleges that SBF gave his father, Joseph Bankman, a law professor at Stanford Law School, $10 million as a gift. However, the complaint has also claimed that Joseph Bankman used part of that amount to fund SBF’s criminal Défense.

The other executives who include Wang and Singh also benefited from the misappropriated funds. In addition to the misappropriation of the funds, it is alleged that the accused individuals failed to keep appropriate records of the various transactions they conducted.

Likewise, there was no control of expenses the organization incurred. Further to this, they also obfuscated various illegal activities.

Sadly, there was also lack of cybersecurity to protect the customer funds, the company and its affiliated businesses against hacking and fraudulent activities. According to the court papers, these fraudulent business activities occurred between February 2020 and November 2022.

What makes matters worse is that part of the embezzlement of the funds took place after FTX filed for Chapter 11 bankruptcy. As a fact, FTX filed for Chapter 11 bankruptcy in November following the implosion of its native token FTT. It is also alleged that part of the company funds was transferred to Alameda Research, its sister company which also lost more than $8 billion of customers’ money.

## What Makes the Charges Severe?

The fact is that most of these fraudulent transactions occurred when FTX exchange was already in a state of insolvency, something the defendants knew about. This is the reason why John Ray, the new CEO, has taken the legal route to recover some of the client’s assets that were misappropriated.

The company has also claimed damages which could help to recover around $1 billion in a bid to pay the customers whose assets were frozen after FTX collapse. It is important to note that under Delaware or US bankruptcy law, the alleged transfers are reversible.

Ray is a well-known attorney who recovered much funds for bankrupt firms in the past. Interestingly, Caroline Allison, the former CEO of Alameda Research will be a key witness in the trial of the former FTX exchange executives. Already, Ellison, Wang, and Singh pleaded guilty to the charges while Bankman-Fried pleaded innocent to the charges levelled against him.

## Conclusion

The FTX lawsuits against its former executives including its Founder and CEO Bankman-Fried aims at recovering some of the stolen funds to repay the customers whose assets were frozen when the exchange filed for bankruptcy. The other defendants are “Gary” Wang, Nishad Singh and Caroline Ellison. In the meantime Ellison, Wang and Singh pleaded guilty to the charges levelled against them.

## FAQS About FTX Samuel Bankman-Fried

**What is happening with Sam Bankman?**

Sam Bankman is undergoing trial in the United States for misappropriating FTX crypto exchange’s customer funds. Several other former FTX executives including Gary” Wang, Nishad Singh and Caroline Ellison are facing similar charges.

**What happened to FTX Bankman?**

FTX Bankman is under court trial in the United States following the collapse of the crypto exchange. He is being accused of misappropriating customers’ funds.

**Where is Bankman-Fried now?**

Bankman-Fried is in the United States where he is undergoing a court trial for misappropriating FTX customer funds. He has, however, pleaded not guilty to the charges.

**What did Sam Bankman-Fried do to FTX?**

Sam Bankman-Fried is accused of misappropriating FTX customer funds. He is currently under trial in the United States.

<div class="blog-details-info">
<div>Author:** Mashell C.**, Gate.io Researcher
<div class="info-tips">\*This article represents only the views of the researcher and does not constitute any investment suggestions.
<div>\*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.
</div>

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