FTX is suing Bankman-Fried, others to recover more than $1 billion

July 20 (Reuters) – FTX Trading sued founder Sam Bankman-Fried and other former executives of the cryptocurrency exchange on Thursday to recover more than $1 billion they allegedly misappropriated before FTX went bankrupt.

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

FTX said the defendants continually misused funds to finance luxury apartments, 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 sought Chapter 11 protection, and can be undone — or “avoided” — under the U.S. Bankruptcy Code or Delaware law, FTX said.

A spokesman for Bankman-Fried declined to comment. Attorneys 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 named Bankman-Fried as the mastermind behind a fraud that led to the collapse of FTX, and included the misappropriation of billions of dollars in customer funds.

Bankman-Fried has pleaded not guilty to several criminal offences. 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 in 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 to buy shares in Robinhood Markets ( HOOD.O ), while Ellison used $28.8 million to pay himself bonuses.

It also said some of Bankman-Fried’s criminal defense is being funded from a $10 million “gift” he made to his father.

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

Federal law allows bankruptcy trustees to avoid transfers of property made in the two years before Chapter 11 filings, if the transfers were 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.

Reporting by Jonathan Stempel in New York; Additional reporting by Mike Scarcella; Editing by Leslie Adler

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