FTX Trading on Thursday sued founder Sam Bankman-Fried and other former executives of the cryptocurrency exchange, seeking to recoup more than $1 billion (nearly Rs. 8,200 crore) they allegedly misappropriated before FTX went bankrupt.

The complaint filed in Delaware bankruptcy court also names as defendants Caroline Ellison, who led Bankman-Fried’s Alameda Research hedge fund; former FTX technology chief Zixiao “Gary” Wang; and former FTX engineering director Nishad Singh.

FTX said the defendants continually misappropriated funds to finance luxury condominiums, political contributions, speculative investments, and other “pet projects,” while committing “one of the largest financial frauds in history.”

The alleged fraudulent transfers occurred between February 2020 and November 2022 when FTX filed for Chapter 11 protection, and can be undone–or “avoided”–under the US bankruptcy code or Delaware law, FTX said.

A spokesman for Bankman-Fried declined to comment. Lawyers for the other defendants did not immediately respond to requests for comment.

FTX is now led by John Ray, who helped manage Enron after the energy trader’s 2001 bankruptcy.

US prosecutors have called Bankman-Fried the mastermind of a fraud that led to FTX’s collapse, and included the misappropriation of billions of dollars of customer funds.

Bankman-Fried has pleaded not guilty to several criminal charges. Ellison, Wang, and Singh have pleaded guilty and agreed to cooperate with prosecutors.

According to Thursday’s complaint, the fraudulent transfers included more than $725 million (roughly Rs. 5,990 crore) of equity that FTX and West Realm Shires, an entity that Bankman-Fried controlled, awarded “without receiving any value in exchange.”

FTX said Bankman-Fried and Wang also misappropriated $546 million (about Rs. 4,500 crore) to buy shares of Robinhood Markets, while Ellison used $28.8 million (about Rs. 236 crore) to pay herself bonuses.

It also said some of Bankman-Fried’s criminal defense is being funded from a $10 million (nearly Rs. 81, 950 crore) “gift” he gave his father.

“The transfers were made when (FTX-related entities) were insolvent, and defendants knew it,” FTX said.

Federal law lets bankruptcy trustees avoid transfers of property made in the two years before Chapter 11 filings if the transfers are made for less than their value and with an intent to defraud a bankruptcy estate.

The case is FTX Trading Ltd et al v Bankman-Fried et al, US Bankruptcy Court, District of Delaware, No. 23-ap-50448. The main bankruptcy case is In re FTX Trading Ltd et al in the same court, No. 22-bk-11068. 

© Thomson Reuters 2023  

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