Crypto exchange FTX has filed a lawsuit against its former CEO Sam Bankman-Fried and several other former executives, in an effort to recover over US$1 billion which it alleges were improperly appropriated.
The lawsuit, which was filed mid last month in a United States Bankruptcy Court, names former Alameda Research CEO Caroline Ellison, FTX co-founder Zixiao “Gary” Wang, and former FTX engineering director Nishad Singh, alongside Bankman-Fried, as defendants.
FTX's complaint accuses the former executives of breaching their fiduciary duties by consistently diverting customer funds to finance their personal expenditures, including luxury condos, political contributions, speculative investments and other personal projects.
The lawsuit alleges that these executives also abused their authority over FTX and its associated entities, orchestrating what FTX describes as "one of the largest financial frauds in history."
The defendants are said to have fostered a company environment that allowed a select few employees to exercise unchecked power over the transfer of fiat and crypto assets and personnel decisions.
Purportedly fraudulent transfers
The lawsuit further alleges that the former executives granted themselves more than US$725 million in equity without providing any equivalent value in return to the debtors.
It also claims that Bankman-Fried and Wang improperly utilised an additional US$546 million to acquire shares in trading platform Robinhood (NASDAQ:HOOD).
The complaint claims that Ellison awarded herself bonuses totaling $28.8 million and used a further $10 million to invest in an artificial intelligence firm.
FTX also contends that Bankman-Fried transferred $10 million from his FTX US account to his father's account as a "gift" in January 2022, funds which it claims are now being used to finance Bankman-Fried's legal defense.
FTX argues that many of these purportedly fraudulent transfers took place while the exchange was insolvent, a circumstance of which the defendants were allegedly well aware. The lawsuit asserts that Bankman-Fried instructed his associates to modify the exchange's code to allow accounts to carry a negative balance, which allowed FTX to maintain regular operations despite running substantial deficits.
According to the filing, by March 2022, Ellison privately estimated that the FTX exchange had a cash deficit exceeding $10 billion.
FTX and its subsidiaries filed for Chapter 11 bankruptcy on November 11, 2022, and are currently led by restructuring chief and CEO John Ray.