Alameda Research and West Realm Shires (WRS) have filed a lawsuit against Sam Bankman-Fried and other FTX executives. The document accuses them of inflating the valuation of a stock clearing platform prior to the exchange’s collapse.
The lawsuit highlights the deliberate manipulation of trades and unauthorized use of funds by former FTX officials. U.S. regulations could deem these actions illegal, per the lawsuit.
FTX Sues Sam-Bankman Fried to Clawback Funds
Samuel Bankman-Fried, Nishad Singh, Zixiao “Gary” Wang, and Caroline Ellison are said to have engaged in a series of transactions that benefited them, using misappropriated funds from FTX Group. They are accused of using these funds to buy ownership stakes in Embed from existing shareholders.
WRS initially announced its acquisition of Embed Financial Technologies Inc. and its subsidiary, Embed Clearing LLC, in June 2022.
The plaintiffs allege that the former FTX executives caused WRS to issue SAFEs (Simple Agreements for Future Equity) to Bankman-Fried, Singh, and Wang. These SAFEs could convert into WRS common stock in the event of Chapter 11 bankruptcy filings. According to the plaintiffs, these transfers and commitments are subject to legal revocation or avoidance under the Delaware and Bankruptcy Codes.
Ellison and Wang already pleaded guilty to federal fraud charges in December last year.
Lawsuit Alleges Insolvent Defendants Made the Purchase
The lawsuit also claims that insiders falsified records to hide Alameda’s contribution to the acquisition’s financing. In addition, the purchase was reportedly timed to close before FTX filed for bankruptcy. According to the court filing, the defendants allegedly moved money to demonstrate a personal transfer from an Alameda bank account to a WRS bank account.
After the acquisition, the debtors received significantly lower amounts from potential bidders than the acquisition price. The lawsuit accuses the defendants of inflating the $220 million payment made by WRS for Embed, suggesting that they deliberately manipulated the transfers and obligations with the intention of defrauding investors.
The current CEO of FTX, John J. Ray III, an American lawyer, has brought the first lawsuit against the former executives. Known for his expertise in recovering funds from failed businesses, Ray has a notable track record that includes the Enron case.
FTX Debacle Ongoing
Reports indicate that SBF’s legal team has submitted a request seeking the dismissal of all criminal charges against him, with only a few exceptions. Notably, the former CEO’s petition largely avoids addressing the most substantial criminal allegations leveled against him.
Bankman-Fried is reportedly bolstering his argument by using a Supreme Court ruling that limits the scope of fraud prosecutions.
The FTX disaster as a whole is still ongoing. FTX investors are suing former NBA player and well-known celebrity Shaquille O’Neal after he participated in their advertising. However, according to media reports, attorneys could not successfully serve him with the documents needed to begin the lawsuit.
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