The bankruptcy estate of FTX has taken legal action against Joseph Bankman and Barbara Fried, the parents of the collapsed crypto exchange's founder Sam Bankman-Fried, aiming to recover "millions of dollars in fraudulently transferred and misappropriated funds" allegedly taken by the couple.
Referring to the defendants as Bankman and Fried, respectively, the debtors of FTX and its affiliated entity, Alameda Research, are also seeking to recover damages attributed to breaches of fiduciary duties and other alleged misconduct.
“As Bankman-Fried’s parents, Bankman and Fried exploited their access and influence within the FTX enterprise to enrich themselves, directly and indirectly, by millions of dollars, and knowingly at the expense of the debtors in these Chapter 11 Cases and their creditors,” reads a 63-page court filing submitted Monday with the U.S. Bankruptcy Court for the District of Delaware.
Bankman-Fried and individuals associated with FTX have been 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 FTX founder is confronting an array of criminal charges, including fraud and money laundering, to which he has entered a plea of not guilty.
FTX’s ‘family business’
The document provided insight into Bankman's use of the term "family business," which he frequently used to refer to the FTX Group, dating back to as early as 2018. The filing asserted that even as the FTX Group faced insolvency, Bankman and Fried continued to profit substantially from this purported "family business."
“Bankman played a key role in perpetuating this culture of misrepresentations and gross mismanagement and helped cover up allegations that would have exposed the fraud committed by the FTX Insiders. And together, Bankman and Fried siphoned millions of dollars out of the FTX Group for their own personal benefit and their chosen pet causes,” reads the filing
In February 2022, Bankman and Fried, both Stanford Law School professors, reportedly acquired a luxurious 30,000 square-foot property in The Bahamas, referred to as "Blue Water" or "Old Fort Bay."
The court filing revealed that the total cash payment for this acquisition amounted to nearly $19 million, including taxes and fees, with all funds sourced from the debtors, and none contributed by Bankman or Fried personally.
The lawsuit also alleged that Bankman proudly claimed to be an early investor in Alameda, the trading arm of the FTX Group that insiders allegedly used to misappropriate billions of dollars in customer and investor funds.
Furthermore, the filing indicated that Bankman received millions of dollars in unearned "gifts" and real estate, traveled on privately chartered jets, expensed $1,200 per night hotel stays to the FTX Group, and even appeared in a Super Bowl commercial alongside “Seinfeld” writer Larry David, all while the FTX Group faced impending collapse.
Joseph Bankman and Barbara Fried were also accused of advocating for tens of millions of dollars in political and charitable contributions, including donations to Stanford University. The lawsuit contended that these contributions “were seemingly designed to boost Bankman’s and Fried’s professional and social status at the expense of the FTX Group.”
Together, Bankman’s and Fried’s influence and control over FTX Group funds expanded as the FTX Group plunged deeper into insolvency,” added the filing. “As has been detailed extensively in criminal indictments, prior civil lawsuits, and reports filed and issued by the Debtors’ bankruptcy estates, far from genuine profit generation, the exponential growth and purported success of the FTX Group was driven by a host of reckless and fraudulent practices perpetrated by and for the benefit of the FTX Insiders.”
These practices, according to the plaintiffs, included “placing billions of dollars in wildly speculative and unhedged bets in crypto assets and frenzied investment in hundreds of imprudent ‘ventures,’ paid for using commingled and isappropriated funds.”