Bankrupt cryptocurrency entities FTX, FTX.US, and Alameda Research have filed a lawsuit against former executives Sam Bankman-Fried (SBF), Nishad Singh, and Gary Wang for lavishly spending FTX Group’s assets on the acquisition of stock clearing firm Embed Financial Technologies.
The move is the first formal action from FTX CEO John Ray against the company’s former management. The lawsuit, filed in the United States Bankruptcy Court for the District of Delaware, seeks to claw back the funds spent during the acquisition.
According to the court document, the plaintiffs accused the former management of taking advantage of FTX Group’s lack of controls and recordkeeping to inflate the valuation of Embed and deliberately purchasing the platform for more than it was worth.
The defendants, addressed as FTX Insiders, performed little to no due diligence on Embed, as they prioritized speed above everything else in the transaction. They accepted all the terms proposed during the negotiation by Michael Giles, Embed’s founder and CEO, who was also the sole representative.
Giles walked away from the deal with roughly $157 million and an “extravagant and unwarranted retention bonus” as an incentive to quickly complete the sale.
FTX began the acquisition negotiation with Giles at the end of March 2022. By mid-April of the same year, the parties had signed the “Memorandum of Terms,” which ascribed a $220 million enterprise value to Embed with a $75 million retention bonus to the platform’s employees, including $55 million to Giles.
However, when the deal was finalized in September – a few weeks before FTX Group went bankrupt – the FTX Insiders spent more than $248 million to acquire Embed. The plaintiffs allege that while the deal took about six months, the essential terms were negotiated and agreed upon within two weeks.
Furthermore, the plaintiffs accused SBF, Singh, and Wang of causing the bankrupt entity to issue Simple Agreements for Future Equity (SAFEs), which could be converted into common stock in the event of a Chapter 11 bankruptcy filing.
Through his lawyers, Ray seeks to revoke the SAFEs and recover the funds spent during the acquisition of Embed. The plaintiffs have also asked the court to order the defendants to bear the legal costs of the lawsuit.
Meanwhile, the plaintiffs also filed an adversary lawsuit against Giles, the employees, and former equity holders of Embed. Some former equity holders include Silicon Valley venture capital firms like Y Combinator, Bain Capital Ventures, and 9Yards.
The post FTX Seeks to Claw Back $250M From SBF and Execs in New Lawsuit appeared first on CryptoPotato.
—
Blog powered by G6
Disclaimer! A guest author has made this post. G6 has not checked the post. its content and attachments and under no circumstances will G6 be held responsible or liable in any way for any claims, damages, losses, expenses, costs or liabilities whatsoever (including, without limitation, any direct or indirect damages for loss of profits, business interruption or loss of information) resulting or arising directly or indirectly from your use of or inability to use this website or any websites linked to it, or from your reliance on the information and material on this website, even if the G6 has been advised of the possibility of such damages in advance.
For any inquiries, please contact [email protected]
