The managers of bankrupt crypto exchange FTX sued the parents of co-founder and former chief executive Sam Bankman-Fried to “recover millions of dollars in fraudulently transferred and misappropriated funds".
Allan Joseph Bankman and Barbara Fried allegedly exploited their access and influence within FTX to “enrich themselves, directly and indirectly, by millions of dollars,” at the expense of the debtors and creditors, the company said in a Monday court filing.
Mr Bankman-Fried’s FTX empire fell apart last November in what prosecutors say is one of the largest financial frauds in US history.
FTX owed customers approximately $8.7 billion when it filed for bankruptcy and about $7 billion in liquid assets have been recovered so far.
As a formal employee of an FTX entity, Mr Bankman should have been well-equipped given his legal expertise to identify wrongdoing at the company well before its rapid unravelling, the filing alleges. And in several instances, it appears he chose to ignore clear red flags.
Mr Bankman and Ms Fried are renowned legal scholars and taught at Stanford Law School. Mr Bankman is an expert on taxes, while Ms Fried’s speciality is ethics.
“This is a dangerous attempt to intimidate Joe and Barbara and undermine the jury process just days before their child’s trial begins,” attorneys representing Mr Bankman and Ms Fried said in a statement.
“These claims are completely false.”
Despite “knowing or blatantly ignoring” that FTX was insolvent or on the brink of insolvency, Mr Bankman and Ms Fried discussed with their son the transfer to them of a $10 million cash gift and a $16.4 million luxury property in the Bahamas, the filing said.
The pair also “pushed for tens of millions of dollars in political and charitable contributions".
Mr Bankman seemed keenly aware of the company’s risk of downfall, according to the filing.
He started conversations about how to ensure that assets, including primary residences, were safe from bankruptcy a year before FTX collapsed into Chapter 11.
Although Mr Bankman-Fried has claimed that his parents “weren’t involved in any of the relevant parts” of the business, the FTX Group was self-described over the years as a “family business”, according to the filing. And in the months leading to the company’s insolvency, Mr Bankman’s role appeared to become only more involved.
The filing includes details of spending escapades, particularly by Mr Bankman, who was employed by FTX Philanthropy starting in 2021, according to court papers.
In one instance, he gave a former law student a “free trip to France,” which included tickets to the Formula One Grand Prix, which cost several thousand dollars.
Although Ms Fried was not formally employed by the crypto exchange, she too wielded influence over the company’s finances. The lawsuit describes her as the “single most influential adviser” over her son and FTX’s political contributions. As evidence of that, she had Mr Bankman-Fried give millions to a political action group that she cofounded, court papers show.
The adversary proceeding is Alameda Research, et al. v. Allan Joseph Bankman and Barbara Fried, 22-110678, US Bankruptcy Court for the District of Delaware.
