Key takeaways:
- FTX reportedly paid $220 million to acquire Embed through its American subsidiary on May 17 despite having allegedly “performed almost no due diligence” on the platform.
- After declaring bankruptcy, FTX attempted to sell the platform, but the highest offer was only $1 million, a 99.5% decrease in price.
The now defunct crypto exchange FTX, has filed a lawsuit against its ex-CEO Sam Bankman-Fried, co-founder Zixiao Wang, and former senior executive Nishad Singh. The legal action relates to the contentious $220 million purchase of stock-clearing platform Embed. FTX’s lawyers allege inadequate due diligence in the acquisition.
In a court filing on May 17, it was revealed that Sam Bankman-Fried (SBF) and other executives, Nishad Singh and Gary Wonder, were aware of Alameda Research’s insolvency but proceeded with the deal regardless. The lawsuit also alleges that the acquisition was greatly overpriced.
The liquidators representing FTX filed the lawsuit in the U.S. Bankruptcy Court for the District of Delaware. Among their allegations is the deliberate use of FTX customers’ funds by SBF and his colleagues to facilitate the acquisition for Alameda.
The platform was severely overestimated by potential buyers, with the highest offer coming in at $1 million. FTX lawyers commented on the situation as follows:
The bidders had discovered what the FTX Group and FTX Insiders had neglected to consider before the acquisition of Embed, namely that the lauded software platform of Embed was practically useless.
FTX, formerly valued at $32 billion, experienced a major downfall. In November, the company declared bankruptcy due to a series of alarming issues that caused customers to attempt mass withdrawals, only to discover that a significant portion of their funds were missing. FTX mishandled customer funds and, in essence, risked substantial amounts of money through its affiliated hedge fund, Alameda.
The lawsuit alleges that Bankman-Fried and other individuals knowingly used fraudulent funds sourced from FTX customers for Alameda’s acquisition of the company. In addition to pursuing legal action against former FTX/Alameda leadership, separate lawsuits aim to recover funds from Michael Giles, the founder and former CEO of Embed, as well as early investors who sold their stakes to Bankman-Fried and his associates.
Propel Venture Partners, a venture capital firm known for supporting prominent tech startups such as Coinbase and Docusign, is among the investors targeted.
Unlike Bankman-Fried and others, Giles and the shareholders of Embed named in a separate lawsuit are not accused of criminal misconduct.
This development follows the recent announcement that the insolvent exchange and its subsidiaries are facing 45 lawsuits totaling $44 billion from the US Department of the Treasury and the Internal Revenue Service (IRS).
Although the case reveals fresh information concerning FTX, it generally exposed the organization’s poor practises and lack of diligence under SBF’s leadership.
The attorneys assert that SBF significantly overpaid for the business. Embed hasn’t been successfully sold since liquidators took over FTX because no one willing to pay as much for it.
