The bankruptcy status of FTX has taken legal action against Joseph Bankman and Barbara Fried, the parents of founder Sam Bankman-Fried’s collapsed crypto exchange, aiming to recover “millions of dollars in fraudulently transferred and misappropriated funds” which was allegedly taken by the couple.
Referring to defendants Bankman and Fried, respectively, the debtors of FTX and its affiliated entity, Alameda Research, also seek to recover damages alleged for breaches of fiduciary duties and other said to be unethical.
“As Bankman-Fried’s parents, Bankman and Fried exploited their access and influence within the FTX business to enrich themselves, directly and indirectly, by millions of dollars, and know- at the expense of the debtors in these Chapter 11 Cases and their creditors,” reads a 63-page court filing filed Monday in the US Bankruptcy Court for the District of Delaware.
Bankman-Fried and individuals associated with FTX are accused of embezzling billions of dollars from customer funds, allegedly constituting one of the largest fraud cases in American history. Preparing for a trial next month from behind bars, the founder of FTX faces several criminal charges, including fraud and money laundering, to which he entered a plea of no guilty.
The ‘family business’ of FTX
The document provides insight into Bankman’s use of the term “family business,” which he has often used to refer to the FTX Group, since 2018. in order to make huge profits from this alleged “family business.”
“Bankman played a key role in perpetuating this culture of misrepresentations and gross mismanagement and helped cover up the allegations that would have exposed the fraud committed by FTX Insiders. And together, Bankman and Fried took a millions of dollars from FTX Group for their own personal benefit and their chosen pet causes,” the filing reads.
In February 2022, Bankman and Fried, both professors at Stanford Law School, reportedly acquired a luxurious 30,000 square-foot property in The Bahamas, called “Blue Water” or “Old Fort Bay.”
The court filing revealed that the total cash settlement for this claim amounted to nearly $19 million, including taxes and fees, with all funds coming from borrowers, and neither Bankman nor Fried contributed personally.
The lawsuit also alleges that Bankman proudly claimed to be an early investor in Alameda, the trading arm of FTX Group that insiders used to misappropriate billions of dollars in customer and investor funds.
In addition, the filing shows that Bankman received millions of dollars in unearned “gifts” and real estate, traveled on private chartered jets, spent $1,200 a night on lodging hotel of the FTX Group, and even appeared in a Super Bowl commercial with “Seinfeld” writer Larry David, as the FTX Group faced impending collapse.
Joseph Bankman and Barbara Fried are also accused of advocating for tens of millions of dollars in political and charitable contributions, including donations to Stanford University. The lawsuit argues that these contributions “seem to be designed to enhance the professional and social status of Bankman and Fried at the expense of FTX Group.”
Together, Bankman and Fried’s influence and control over FTX Group’s funds expanded as FTX Group descended into greater insolvency,” the filing added. “As detailed in the criminal charges, first civil cases, and reports filed and issued in bankruptcy by the Debtors, far from the actual generation of profit, the exponential growth and alleged success of the FTX Group was driven by a host of careless and fraudulent acts committed by and for the benefit of FTX Insiders.
These practices, according to the plaintiffs, included “placing billions of dollars in wildly speculative and unconstrained bets on crypto assets and recklessly investing in hundreds of unsound ‘businesses’ ,’ which is paid for the use of mixed and unused funds.”
