Cryptocurrency Exchange FTX Files Lawsuit Against Former CEO and Executives Over Controversial Acquisition

Cryptocurrency exchange FTX has taken legal action against its former CEO Sam Bankman-Fried, co-founder Zixiao Wang, and former senior executive Nishad Singh. The lawsuit stems from the controversial $220 million acquisition of stock-clearing platform Embed, with FTX lawyers claiming a lack of due diligence in the transaction.

In a filing on May 17, FTX alleged that it had acquired Embed through its United States subsidiary without conducting thorough due diligence. Following FTX’s bankruptcy filing, the court approved the sale of Embed and other FTX assets, but the highest bid for the platform was a mere $1 million.

FTX’s lawyers stated that the bidders had uncovered the true value of Embed’s software platform, which they deemed essentially worthless, a realization that FTX and its insiders had failed to make before the acquisition.

Despite receiving non-binding indications of interest from 12 entities, only Embed’s founder and former CEO, Michael Giles, submitted a final bid after conducting comprehensive due diligence. Giles, who had already received approximately $157 million in connection with the acquisition, made a final bid of $1 million, subject to reductions at closing.

FTX’s lawyers accused the company’s insiders of using lax controls and recordkeeping to commit a massive fraud. They alleged that misappropriated customer funds were used to facilitate the purchase of Embed, even though the insiders were aware of the company’s insolvency at the time of the deal.

The lawyers also claimed that misleading records were created to conceal the involvement of Alameda Research in funding the acquisition, asserting that funds had been transferred between FTX entities rather than from Bankman-Fried, Singh, and Wang, as claimed.

FTX seeks to have the transactions labeled as avoidable fraudulent transfers, obligations, and preferences. Additionally, they request that the defendants’ claims be disallowed until FTX can recover the funds lost through these avoidable transfers.

Since filing for bankruptcy in November 2022, FTX’s new leadership has been focused on recovering funds to repay customers and creditors. The exchange has also been contemplating a potential relaunch in the future.



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