The November 2022 collapse of FTX, one of the largest cryptocurrency exchanges, has sparked an investigation into the company’s finances. The latest development in the ongoing bankruptcy process took place on Thursday when lawyers for the exchange sued the company’s founder and former CEO, Sam Bankman-Fried, along with three other former executives.
The lawsuit, as detailed by the Financial Times, claims that Bankman-Fried and his team misappropriated more than $1 billion in the months leading up to FTX’s collapse. Among the alleged beneficiaries of the misappropriated funds was Caroline Ellison, the former head of FTX’s trading arm Alameda Research, who allegedly paid herself a bonus of $22.5 million, part of which was later transferred to her personal bank account.
In addition to the lawsuit, a report issued by FTX’s new management provides more details on the alleged fraud. According to the report, Bankman-Fried and a top lawyer of the company repeatedly lied to banks and auditors, left false documents and helped FTX and its affiliates move between jurisdictions to cover up its insolvency.
The report even alleges that the lawyer, who is yet to be named, falsified a payment agreement between FTX and Alameda that was backdated by two years and wet-signed by Bankman-Fried to avoid a DocuSign timestamp. Disgraced former executive Ellison made a private note in March 2022, in which she estimated FTX.com had a cash deficit of more than $10 billion. She has since pleaded guilty to her role in the company’s collapse.
The report also states that Bankman-Fried offered a former Bahamian government official a $1 million “bonus” in an effort to quickly secure a necessary business license. Bankman-Fried has since pleaded not guilty to US criminal charges, including fraud, money laundering and campaign finance violations.
The lawsuit and report provide more insight into the alleged financial misdoings of Bankman-Fried and his top associates. A spokesman for Bankman-Fried declined to comment when contacted by Bloomberg. Lawyers for the other defendants failed to respond to requests for comment.
As reported earlier by PYMNTS, FTX is seeking to relaunch its exchange. The company has started soliciting interested parties to reboot FTX. com, with at least 363 potential buyers signing non-disclosure agreements to learn more about the restructuring and possible revival of the exchange. Notable names listed in the court filing include Nasdaq, BlackRock, Robinhood, Ripple Labs, Galaxy Digital, and OKCoin. It is unclear, however, if these plans are still progressing, as the company’s current executives have stated they have already recovered most of the stolen funds and want to use the money to reimburse creditors. So far, the FTX Debtors have recovered $7 billion of the approximately $8.7 billion in customer-deposited funds that were misappropriated from the FTX.com exchange.
In addition, PYMNTS reveals that FTX executives were aware of a $10 billion shortfall in March 2022, months before the exchange collapsed. The deficit was hidden under a sham account titled “Korean Friend.” The report also mentions that a top FTX lawyer, referred to as “Attorney-1,” actively facilitated and covered up the commingling of customer and corporate funds. This lawyer is accused of falsifying documents and providing false information to various parties, including customers, banks, auditors and investors.