FTX Sues Bankman-Fried, Others Over $220 Million Embed Deal

FTX Trading Ltd. sued Sam Bankman-Fried and other former leaders of the bankrupt crypto empire for allegedly using misappropriated funds to buy an “essentially worthless” stock-clearing firm in 2022 for $220 million.

Bankman-Fried and other former company insiders orchestrated “a series of self-dealing transactions” that enabled FTX, under his leadership, to acquire Embed Financial Technologies Inc. at a “wildly inflated” price, the bankrupt crypto exchange said in complaints filed Wednesday in the US Bankruptcy Court for the District of Delaware.

The sale amounts to a fraudulent transfer that entitles FTX to claw back the money, FTX said.

Bankman-Fried and other indicted former executives used the company’s “lack of controls and recordkeeping to perpetrate a massive fraud,” which included purchases of private homes and jets, political and charitable contributions, and various investments, according to the suit. “The acquisition of Embed was one such transaction.”

FTX insiders “surreptitiously and unlawfully diverted and transferred assets belonging to FTX.com” to fund the transaction, believing it would help the company expand into conventional securities markets and enhance their own riches, the new leadership led by CEO John J. Ray III said. The product was to be called FTX Stocks.

The deal was done with “almost no due diligence,” leading FTX to pay an unreasonable sum for “a faulty technology platform” and award Embed founder Michael Giles $157 million, according to the complaint.

Since filing for Chapter 11 in November, FTX has been unable to attract any offers higher than a $1 million bid submitted by Giles for the Embed assets, the company said.

In addition to suing Bankman-Fried and his associates for $248 million, FTX also filed complaints against Giles and other former Embed shareholders.

The case is In re FTX Trading Ltd., Bankr. D. Del., No. 22-11068, complaints filed 5/17/23 .