Lawyers for FTX Trading have filed a lawsuit accusing the parents of its founder Sam Bankman-Fried of exploiting their influence over their son to siphon millions of dollars from the company, while spending lavishly on a luxury home. luxury in the Bahamas and channeling contributions towards their “pet causes” and Stanford University.
The lawsuit filed Monday against Allan Joseph Bankman and Barbara Fried in the bankruptcy case of the collapsed cryptocurrency exchange in Delaware seeks to recover damages allegedly caused by the couple to the company.
FTX went bankrupt in November when the global stock market ran out of money after the equivalent of a bank run. Bankman-Fried has pleaded not guilty to charges that he cheated investors and plundered client deposits to make lavish real estate purchases, campaign contributions to politicians and risky trades at Alameda Research, his hedge fund trading firm cryptocurrency. His federal fraud trial is scheduled to begin Oct. 3 in Manhattan.
Several other former FTX executives have pleaded guilty to fraud and conspiracy and are cooperating with investigators.
The lawsuit alleges that Bankman, a Stanford University law professor and tax law expert, and Fried, a retired Stanford law professor, participated in wrongdoing that led to the collapse of FTX and gave subject to criminal and civil investigations.
“Although it presents itself to investors and the public as a sophisticated group of cryptocurrency exchanges and businesses, FTX Group describes itself as a ‘family business,’” the lawsuit states.
“Bankman played a key role in perpetuating this culture of misrepresentation and gross mismanagement and helped cover up allegations that would have exposed fraud committed by FTX insiders,” the complaint adds. “And together, Bankman and Fried siphoned millions of dollars from FTX Group for their own personal benefit and their chosen causes.”
Lawyers for Bankman and Fried released a statement denying the allegations and targeting John Ray III, who was named CEO when FTX filed for bankruptcy protection and is accused of trying to clean up the mess left by its collapse.
“This is a dangerous attempt to intimidate Joe and Barbara and undermine the jury process just days before their child’s trial begins,” attorneys for Bankman and Fried wrote. “These claims are completely false. Mr. Ray and his massive team of lawyers, who collectively rack up millions of dollars in fees while returning relatively little to FTX’s clients, know better.
Among other things, the lawsuit alleges that the couple helped orchestrate a scheme in which their son gave them a tax-free “gift” of $10 million. The scheme involved Bankman-Fried receiving a loan from Alameda and then transferring the money to his parents. The lawsuit describes the transaction as “part of a plan and pattern to enrich and profit from it.”
The complaint also states that more than $18.9 million in FTX funds were used to purchase a 30,000 square foot luxury residence in the Bahamas for Bankman and Fried, who also benefited from more than $90,000 in funded expenses by FTX to furnish and maintain the property. .
Meanwhile, the lawsuit alleges that Bankman directed more than $5.5 million in charitable contributions from FTX to Stanford University in what the complaint describes as a “naked personal transaction” with the aim of ” attract favors and enrich his employer at the expense of the FTX group. »
Fried is accused of encouraging her son and other FTX members to make illegal political contributions, including to “Mind the Gap,” or MTG, a political action committee she co-founded and served as president and president.
“Fried went to great lengths to obscure Bankman-Fried’s identity as a political donor. She regularly raised this issue in email communications with Bankman-Fried and advised him to avoid such disclosure,” according to the lawsuit.
The lawsuit alleges that FTX’s former head of engineering, Nishad Singh, was used as a conduit through which Alameda funds were used to make political contributions to beneficiaries who were “hand-selected by Fried and approved by Bankman-Fried.
Singh pleaded guilty in February to charges including conspiring to make illegal political contributions and defrauding the Federal Election Commission. According to FEC records, Singh contributed approximately $9.7 million in 2022 and late 2020 to various candidates and committees.
Earlier this month, Ryan Salame, former co-chief executive of FTX Digital Markets, pleaded guilty to making tens of millions of dollars in illegal campaign contributions to U.S. politicians and engaging in in a criminal conspiracy to operate an unlicensed money transmitting business.
Meanwhile, Bankman-Fried’s lawyers argued Tuesday before a federal appeals court that her free speech rights and ability to prepare for trial were compromised by a judge’s decision to dismiss his bail of 250 million dollars and to keep him in pre-trial detention. The judge revoked Bankman-Fried’s bond last month after finding probable cause that he had tampered with witnesses.
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