FTX Files Lawsuit Against Former Executives Over Alleged Misappropriation of Funds

Sam Bankman-Fried, a former CEO of cryptocurrency exchange FTX, and other former senior personnel are the targets of legal action by the exchange in an effort to recover more than $1 billion in monies that were allegedly misused. The defendants are accused of violating their fiduciary obligations and conducting one of the biggest financial scams in history in the complaint, which was filed in a US bankruptcy court.

The Allegations

The previous executives, according to FTX, constantly misappropriated consumer monies to pay for opulent real estate purchases, political donations, speculative investments, and individual side projects. According to the complaint, they allegedly established an atmosphere in which a small number of workers had minimal control over the movements of fiat and cryptocurrency assets.

The lawsuit also claims that the defendants gave themselves shares worth over $725 million without giving anything back to the business. A further $546 million is alleged to have been stolen by Bankman-Fried and Wang and used to fund the Robinhood trading platform.

Former Alameda Research CEO Caroline Ellison is accused of taking $28.8 million in compensation for herself and investing $10 million of that money in an artificial intelligence business.

Suspicious Transfers and Code Modifications

According to FTX, Bankman-Fried made a $10 million “gift” from his FTX US account to his father’s account on the same exchange on January 24, 2022. Soon after, Bankman-Fried’s father sent $6.75 million in total across six payments to his personal accounts at TD Ameritrade and Morgan Stanley. According to FTX, this “gift” is being used to pay for Bankman-Fried’s legal representation.

The complaint also claims that the defendants were aware of the exchange’s insolvency at the time when many of the allegedly fraudulent transactions took place. Negative balances were initially forbidden by FTX, but Sam Bankman-Fried is accused of ordering staff to tweak the exchange’s coding so that Alameda could continue to have a negative balance.

This code change allowed FTX to continue operating regularly even though it had significant shortfalls. According to reports, Ellison calculated that the FTX exchange will have a liquidity shortfall of more than $10 billion by March 2022.