Bankman-Fried Faces Lawsuit: FTX Fintech Claimed ‘Worthless’

by James · May 18, 2023

FTX, Alameda Research and over 100 affiliates are suing former FTX CEO Sam Bankman-Fried, FTX co-founder Gary Wang and former FTX CEO Nishad Singh.

They claim that the acquisition of stock clearing platform Embed was significantly overpriced just weeks before FTX’s collapse. FTX’s current management claims that Bankman-Fried and others knew Alameda Research was insolvent when they completed the $250 million deal.

The lawsuit alleges that fake funds from FTX customers were used for the acquisition. Separate suits also target Embed’s founder Michael Giles and early investors, including Propel Venture Partners. Giles and Embed’s shareholders are not accused of wrongdoing.

Lawyers representing FTX aim to recover the money, arguing that Alameda was already insolvent and that a high price was paid for Embed. The lawsuits seek to maximize repayment to FTX and Alameda’s creditors during the bankruptcy process.

In a revelation that has emerged from internal messages cited in the filing, two senior employees raised concerns on June 27 about the Embed platform’s inability to accommodate around 600 new user accounts during the gradual release of FTX shares. This comes as a surprise considering the release schedule which aims for Embed to handle 10,000 new accounts.

According to FTX’s bankruptcy attorneys, the due diligence performed on Embed was minimal, and FTX accepted significant terms proposed by Giles, the founder, CEO and sole representative of Embed during the negotiations. Shockingly, Giles personally received approximately $157 million as part of the buyout deal and a $55 million bonus.

FTX’s bankruptcy representatives further claim that the retention bonus agreement was highly unusual. It only tied Giles to Embed until the deal was terminated, rather than ensuring his continued involvement in running the company thereafter. Also, as the largest shareholder in Embed, Giles received an additional sum of over $100 million for his equity.

FTX’s lawyers reveal that attempts to sell the company after the Embed acquisition have fallen flat, with no interested buyers willing to pay anywhere near the original purchase price. Surprisingly, Michael Giles, the founder of Embed, made the highest bid of $1 million to buy back the company.

According to FTX’s caretaker management, the outcome of the bidding process, including Giles’ offer representing only 0.45% of the original purchase price, clearly indicates that the $220 million paid for Embed was grossly inflated compared to its actual value.

The lawyers argue that the bidders recognized a crucial oversight made by FTX Group and FTXInsiders – that Embed’s highly regarded software platform was essentially worthless.