Bankrupt FTX Trading has filed a new lawsuit against co-founder Sam Bankman-Fried and his former top executives, shedding light on allegations of massive fraud within the fallen cryptocurrency conglomerate. The court documents reveal shocking details of financial misconduct, including plans to purchase an island nation and questionable transactions amounting to over $1 billion.
The lawsuit, which seeks to recover millions of dollars in cash, discloses that Caroline Ellison, former co-CEO at affiliated hedge fund Alameda Research, estimated a staggering cash deficit of more than $10 billion at FTX.com, eight months before the crypto exchange collapsed.
One of the most startling allegations in the complaint is the claim that Bankman-Fried and former FTX CTO Gary Wang used $546 million from Alameda in May 2022 to acquire shares in Robinhood Markets. This raises concerns about potential conflicts of interest and misappropriation of funds.
The complaint also reveals allegations regarding the FTX Foundation, the nonprofit arm of FTX. It states that the foundation pursued projects that were often misguided and sometimes dystopian. The lawsuit includes a memo between a foundation officer and Bankman-Fried’s brother, Gabriel Bankman-Fried, outlining a plan to purchase the tiny island nation of Nauru and build a bunker there. The memo suggests that the island could be used to ensure the survival of members of the effective altruism movement in the event of a global catastrophe.
The lawsuit further exposes the actions of Caroline Ellison, who allegedly granted herself a $22.5 million bonus when she estimated the cash shortfall at FTX.com. The funds were transferred from Alameda to Ellison’s FTX account and eventually reached her personal bank account. Ellison used $10 million of the money to invest in an artificial intelligence company in her own name. Additionally, she allegedly misappropriated funds for personal bonuses, despite her extensive misconduct outlined in the complaint.
The complaint also highlights the privileges enjoyed by members of Bankman-Fried’s inner circle. It reveals instances where executives received fraudulent transfers and granted themselves equity rights without any compensation. Nishad Singh, FTX’s former director of engineering, allegedly received a transfer of approximately $477 million worth of FTX common shares without paying anything in return. Bankman-Fried himself allegedly obtained rights to over $6 million in equity without providing any compensation.
Furthermore, Sam Bankman-Fried is accused of taking fraudulent measures to make FTX go public. The lawsuit claims that he signed a sham payment agent agreement in April 2021, falsely backdated by nearly two years. This agreement was supposed to be presented to an external auditor for a financial statement as the company considered an initial public offering.
In a surprising turn of events, Ellison, Wang, and Singh have admitted to fraud and are cooperating with federal prosecutors. However, Bankman-Fried has rejected the charges against him and is scheduled to face trial in October.
The latest lawsuit against Sam Bankman-Fried and his former top executives reveals a series of shocking allegations and immense financial misconduct at FTX Trading. These allegations, if proven true, could have far-reaching consequences for the cryptocurrency industry and the individuals involved. As the case progresses, it remains to be seen how the legal proceedings and potential trial will unfold.
