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FTX leadership is suing Sam Bankman-Fried over $220 million pre-bankruptcy deal
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, citing lack of due diligence.
According to a May 17 filing, FTX had paid $220 million to acquire Embed through its US subsidiary after it allegedly performed “almost no due diligence” on the platform.
After FTX filed for bankruptcy, the judge in charge of the proceedings approved the sale of Embed and other assets owned by FTX, but the highest bidder for the platform only offered $1 million, with FTX’s attorneys noting:
“The bidders had discovered what the FTX Group and FTX Insiders didn’t bother to assess prior to Embed’s acquisition, which was that Embed’s vaunted software platform was essentially worthless.”
While 12 entities had submitted nonbinding indications of interest — the largest of which was $78 million — all but one declined to make a firm offer after a more extensive due diligence, which Embed’s founder and former CEO, Michael Giles, wax.
According to FTX’s attorneys, Giles had “personally received approximately $157 million in connection with the acquisition,” but his latest offer to regain ownership of Embed was a paltry $1 million and subject to closing discounts.
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The lawyers additionally accused FTX insiders of “taking advantage of the FTX Group’s lack of auditing and record-keeping to commit massive fraud” by using embezzled customer funds to facilitate the purchase of Embed and fully agreed aware that the company was insolvent when they finalized the agreement.
The lawyers further alleged that misleading data was created to obscure Alameda’s role in financing the Embed acquisition, claiming that funds were transferred between FTX entities and did not come from Bankman-Fried, Singh and Wang, as alleged .
FTX is seeking to have the transactions labeled as “avoidable fraudulent transfers and liabilities, and/or preferences,” in addition to denying claims from the defendants until FTX can recover funds lost through avoidable transfers.
FTX filed for bankruptcy on November 11, and since then the new leadership has been focused on recovering funds to repay customers and creditors. It has also considered a possible relaunch of the exchange.
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