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FTX Sues to Recover $157 Million in Preferential Transfers

2 mins
Updated by Geraint Price
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In Brief

  • FTX is suing former employees and their companies for $157 million, alleging fraudulent withdrawals during a preferential period.
  • The company has been involved in bankruptcy proceedings for over 10 months, attempting to claw back funds through legal action.
  • FTX is also seeking to recover $71.5 million in donations and investments from its philanthropic arm, despite community doubts.
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FTX, under the leadership of John J. Ray III, is suing its former employees and their companies for $157 million, alleging fraudulent withdrawals during the preferential period.

FTX has been involved in bankruptcy proceedings for over 10 months. Throughout that period, the bankruptcy team has been trying to claw back funds through legal action and urging the voluntary return of donations.

FTX Sues Former Hong Kong Employees

According to court filings, FTX has filed a lawsuit against the following individuals and entities:

  • Michael Burgess
  • Kevin Nguyen
  • Darren Wong
  • Matthew Burgess
  • Jing Yu
  • Lesley Burgess
  • 3Twelve Ventures Ltd.
  • BDK Consulting Ltd.

FTX claims that although Michael Burgess, Nguyen, and Wong were employees of Hong Kong-based Salameda, they worked in senior-level positions for the FTX Group. They used FTX Group’s funds for trading activities, averaging $100-$400 million in monthly notional trading volume from January to November 2022.

Click here to learn more about the FTX collapse

Also, FTX alleges that these parties took advantage of the preferential withdrawals, stealing the opportunities of a fair withdrawal for other FTX creditors. The filing reads:

“Based on currently-available information, during the Preference Period, the Defendants collectively received the benefit of withdrawals from their and FTX US accounts of the digital assets and fiat currency set forth in the attached Exhibit A, which constitute preferential transfers and are avoidable under Section 547 of the Bankruptcy Code.

Based on pricing as of August 31, 2023, those assets are collectively valued at approximately $157.3 million.”

Previous Clawback Actions 

FTX is actively taking legal actions against individuals and firms to claw back funds to make the creditors whole. On Sept. 19, the company sued the parents of the former CEO, Sam Bankman-Fried, to recover allegedly misappropriated funds.

In February 2023, FTX threatened to take legal action against politicians and members of Congress if they did not voluntarily return donations made to them. 

However, a number of other beneficiaries have started to return the money voluntarily. In June 2022, the New York Metropolitan Museum of Art voluntarily agreed to return $550,000 to the bankrupt firm. Recently, Stanford University confirmed the return of FTX donations worth $5.5 million.

In May 2023, BeInCrypto reported that FTX aims to recover $4 billion from the bankrupt crypto lender Genesis. It is also seeking to recover $71.5 million in donations and investments from its philanthropic arm. 

Despite these clawback efforts, the community wonders if any creditors have got their funds back yet. An FTX creditor activist replies:

“No mate, unfortunately. All going to the insane lawyer fees at the moment.”

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Harsh Notariya
Harsh Notariya excels in delivering SEO-optimized crypto news under tight deadlines. Previously, as a Growth Marketer at Sporty and a Community Consultant at Totality Corp, he significantly boosted community engagement and followers. Harsh also crafted engaging content for top crypto influencer Shivam Chhuneja, blending meme references for an educational yet fun experience. His versatile skills make him a notable figure in crypto journalism.