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FTX Lawyers Sue Bankman-Fried Over Fintech they Now Say Is ‘Worthless’

The bankruptcy saga of FTX, Alameda Research, and the associated companies led by Sam Bankman-Fried has taken a legal turn. The current leadership of FTX has filed a lawsuit in the U.S. Bankruptcy Court, alleging fraudulent activities and an overpriced acquisition that ultimately led to the collapse of the exchange.

The lawsuit revolves around the acquisition of stock clearing platform Embed by Alameda Research. FTX’s leadership claims that Bankman-Fried and other executives were aware of Alameda Research’s insolvency when they finalized the $250 million deal. According to the lawsuit, fraudulent funds from FTX customers were used for Alameda’s acquisition of Embed.

The legal action also targets other individuals involved in the acquisition, including Gary Wang, co-founder of FTX, and Nishad Singh, former senior executive at FTX. In addition to the former FTX/Alameda leadership, the lawsuit aims to recover funds from Michael Giles, founder and former CEO of Embed, as well as early investors who sold their stakes to Bankman-Fried and his associates.

It is important to note that Giles and Embed shareholders are not accused of any criminal wrongdoing. The lawsuit focuses on the claim that Alameda was already insolvent at the time of the acquisition and that an inflated price was paid for Embed. The intention behind these legal actions is to maximize the repayment to FTX and Alameda’s creditors within the bankruptcy process.

Apart from the allegations of fraud and self-dealing, FTX’s bankruptcy stewards also argue that the deal itself was a poor decision. According to FTX’s lawyers, Embed was put up for bidding during the bankruptcy process, and it is now considered to be nearly worthless compared to the price paid by Bankman-Fried and his team.

Internal messages quoted in the filing reveal concerns about Embed’s ability to handle new user accounts, indicating potential issues with the platform. The filing also states that Embed had around $37 million in assets and a $25,000 profit as of March 31, 2022.

One of the focal points of the lawsuit is the $55 million retention bonus given to Giles, which did not require him to stay with the company after the deal closing. FTX’s bankruptcy representatives argue that this arrangement was unusual and that Giles received a significant amount for his equity as the largest shareholder of Embed.

Communications between Embed employees suggest a swift deal closure without proper due diligence. FTX’s lawyers claim that no one is willing to buy Embed for a price close to what Bankman-Fried and his team paid for it, even after attempting to sell the company a few months after the acquisition.

Giles himself submitted the highest bid to buy back the company for $1 million but did not respond to requests for comment. FTX’s caretaker leadership argues that the bidding process clearly demonstrates that the $220 million paid for Embed was greatly inflated compared to the company’s actual value.

The lawsuit sheds light on the controversial acquisition of Embed and the subsequent bankruptcy of FTX. As the legal battle unfolds, the true extent of the alleged fraudulent activities and the financial implications for all parties involved will become clearer.


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