• Tom Jowitt

Lawsuit Against FTX Founder, As New Boss Slams Previous Management

Class action lawsuit launched against Sam Bankman-Fried, as new FTX CEO slams previous corporate management practices



The new CEO of cryptocurrency exchange FTX has lambasted the corporate management of the failed exchange.


Last week FTX, which had been among the world’s largest crypto exchanges, collapsed into Chapter 11 bankruptcy protection, after a series of setbacks.


Prior to the bankruptcy filing, former CEO Sam Bankman-Fried had sought additional funding of up to $9bn from outside sources, amid reports the exchange faced $7 billion in total liability.

Corporate governance

On Monday FTX’s Chapter 11 filing to a US bankruptcy court, revealed that FTX had a “severe liquidity crisis” and the group could have more than 1 million creditors.


“Questions arose about Mr. Bankman-Fried’s leadership and the handling of FTX’s complex array of assets and businesses under his direction,” the filing added.


At the time of filing for Chapter 11, Bankman-Fried stepped down and was replaced by new CEO John J. Ray III, with the outgoing CEO reportedly staying on to assist with the transition.


Ray is an experienced operator, having overseen some of the biggest bankruptcies in corporate history, including the collapse of the energy giant Enron.


In total Ray has 40 years of experience in restructuring companies, and he promised to work with federal regulators to investigate FTX founder Bankman-Fried.


And he pulled no punches in his initial assessment of FTX and Bankman-Fried, saying he had never seen anything as bad as FTX.


“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” Ray wrote in a filing with the Delaware bankruptcy court. “From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”

In the filing, Ray also disclosed that he did “not have confidence” in the accuracy of the balance sheets for FTX and its sister company Alameda Research, writing that they were “unaudited and produced while the Debtors [FTX] were controlled by Mr. Bankman-Fried,” CNBC reported.


Ray also said that a “substantial portion” of assets held with FTX may be “missing or stolen,” following widespread reports on social media of the theft of hundreds of millions in cryptocurrencies.


Bankman-Fried and FTX “management practices included the use of an unsecured group email account as the root user to access confidential private keys and critically sensitive data for the FTX Group companies around the world, the absence of daily reconciliation of positions on the blockchain, the use of software to conceal the misuse of customer funds,” CNBC reported the filing as stating.


It has also been reported that FTX used corporate funds to purchase homes and houses for the benefit of FTX staff, the bankruptcy filing from Ray alleged.


Ray reportedly noted that “certain real estate” was recorded as being directly owned in the personal name of certain employees.


Corporate funds were allegedly used to purchase homes in the Bahamas and “personal items” in the name of employees and advisors of FTX – days after a FTX penthouse apartment (allegedly belonging to Sam Bankman-Fried) was listed for nearly $40 million.


Sam Bankman-Fried meanwhile has claimed FTX is still solvent.


In a lengthy series of tweets posted overnight on Tuesday, Bankman-Fried insisted the company had about $9bn (£7.6bn) of assets, in a mixture of semi-liquid and illiquid holdings, while owing customers only $8bn.


32) Anyway — none of that matters now. What matters is doing the best I can. And doing everything I can for FTX’s customers. — SBF (@SBF_FTX) November 16, 2022

Despite being ousted as the chief executive, Bankman-Fried reportedly continues to try to raise capital for a rescue package for the exchange


FTX lawsuit

Inevitably in such a major case such as this, a lawsuit against FTX founder and former CEO Sam Bankman-Fried has been filed in Florida by class action attorney Adam Moskowitz.


The lawsuit also names a number of other defendants including some celebrity backers of FTX including comedian Larry David; Japanese tennis star Naomi Osaka; married couple Gisele Bündchen and Tom Brady; as well as his fellow NFL star Trevor Lawrence; basketball players Shaquille O’Neal, Steph Curry, Udonis Haslem and the Golden State Warriors; baseball players Shohei Ohtani and David Ortiz; and celebrity investor Kevin O’Leary.


“The Deceptive FTX Platform maintained by the FTX Entities was truly a house of cards, a Ponzi scheme where the FTX Entities shuffled customer funds between their opaque affiliated entities, using new investor funds obtained through investments in the YBAs and loans to pay interest to the old ones and to attempt to maintain the appearance of liquidity,” the Guardian quoted the lawsuit as saying. “Part of the scheme employed by the FTX Entities involved utilising some of the biggest names in sports and entertainment – like these Defendants – to raise funds and drive American consumers to invest in the [yield-bearing accounts], which were offered and sold largely from the FTX Entities’ domestic base of operations here in Miami, Florida, pouring billions of dollars into the Deceptive FTX Platform to keep the whole scheme afloat,” the lawsuit alleges.


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