In a shocking twist to the ongoing saga of the bankrupt cryptocurrency exchange FTX, the company is now suing the parents of its co-founder and former CEO, Sam Bankman-Fried. The lawsuit, filed in federal bankruptcy court, accuses Joseph Bankman and Barbara Fried of exploiting their access and influence within FTX to personally gain millions of dollars. The complaint alleges that the couple knowingly used the money from their son’s companies to enrich themselves and fund their personal interests.
The intricate web of financial transactions and alleged misconduct includes claims that the parents, both Stanford University Law School professors, accepted $10 million gifted from their son that originated from Alameda, a sister hedge fund. They were also allegedly deeded a $16.4 million property in the Bahamas, paid for with funds from FTX Trading. Further, the complaint highlights correspondence between the parents and FTX insiders, suggesting their involvement in decision-making within the company, and accuses them of silencing a whistleblower.
FTX Launches Legal Battle Against Co-Founder’s Parents Over Alleged Misappropriation of Funds
The bankrupt cryptocurrency exchange FTX has initiated a lawsuit against the parents of its co-founder and former CEO Sam Bankman-Fried. The legal action seeks to recover millions of dollars, alleging that the parents exploited their positions within FTX and its sister hedge fund Alameda Research to their financial advantage.
A Tale of Misused Influence
The lawsuit, filed in federal bankruptcy court on Monday, specifically accuses Joseph Bankman and Barbara Fried of using "their access and influence within the FTX enterprise to enrich themselves" at the expense of the debtors. It claims that the couple, who are both professors at Stanford University Law School, accepted $10 million gifted from their son in early 2022, which allegedly originated from Alameda. The couple was also reportedly deeded a $16.4 million property in the Bahamas, paid for with funds from FTX Trading.
Allegations of Insider Activities
The complaint also highlights correspondence between Bankman and Fried and FTX insiders. Bankman was allegedly involved in decision-making at the exchange and its connected entities, and even took a leave of absence from Stanford to join the FTX payroll. The plaintiffs argue that the couple either knew or should have known they were receiving funds from financially endangered companies. Bankman is also accused of attempting to silence a whistleblower.
Funding Personal Interests
The plaintiffs allege that the couple used their influence to funnel money towards their personal interests. Bankman reportedly directed $5.5 million to be donated to Stanford, and Fried allegedly succeeded in having tens of millions of dollars from her son’s companies donated to a political action committee she co-founded.
The lawsuit demands compensatory damages, the return of the funds and property that the couple received in connection with FTX and its affiliated entities, punitive damages, and attorney fees.
Defendants Deny Allegations
Bankman and Fried’s attorneys, Sean Hecker and Michael Tremonte, have refuted these allegations, describing them as "completely false". They argue that the lawsuit is a wasteful attempt to intimidate their clients and could potentially deprive FTX customers of funds that could be returned to them.
The Former CEO’s Legal Troubles
Bankman-Fried was arrested in the Bahamas in December and extradited to the U.S., where he was charged with several federal crimes related to the collapse of his cryptocurrency empire. He was released on a $250 million bond signed by his parents and two other guarantors but was ordered back behind bars in August after prosecutors alleged that he attempted to harass a key witness in his case. His trial is set to begin next month.
This lawsuit adds another layer of complexity to the already convoluted case surrounding the collapse of FTX. It’s an unfortunate reminder of the potential risks associated with the rapidly evolving cryptocurrency industry. As this case unfolds, it will be interesting to see how it impacts future regulatory actions and best practices within the crypto space.