Lawsuit Accuses Parents of FTX Founder of Exploiting Influence, Siphoning Millions
In a new legal development surrounding the collapsed cryptocurrency exchange FTX, lawyers for FTX Trading have recently filed a lawsuit against the parents of its founder, Sam Bankman-Fried. The lawsuit alleges that Allan Joseph Bankman and Barbara Fried exploited their influence over their son to siphon millions of dollars from the company while also engaging in lavish spending and funneling contributions to their personal causes and Stanford University.
The complaint was filed as part of FTX's bankruptcy case in Delaware, with the aim of recovering damages purportedly caused by the actions of the couple.
FTX had entered bankruptcy in November following a crisis akin to a bank run, during which the exchange ran out of funds. Sam Bankman-Fried himself has already faced charges of cheating investors, looting customer deposits for extravagant real estate purchases, campaign contributions, and risky trading at Alameda Research, his cryptocurrency hedge fund trading firm. His federal fraud trial is scheduled to begin on October 3 in Manhattan.
The lawsuit goes further, alleging that Bankman, a Stanford University law professor specializing in tax law, and Fried, a retired Stanford law professor, were active participants in the wrongdoing that led to FTX's collapse, resulting in both criminal and civil investigations.
The lawsuit highlights the deceptive nature of FTX's operations, claiming that despite presenting itself as a sophisticated group of cryptocurrency businesses, it was, in fact, a "family business."
It contends that Bankman played a significant role in perpetuating this culture of misrepresentation and gross mismanagement while assisting in concealing allegations that would have exposed fraudulent activities by FTX insiders. Furthermore, the lawsuit accuses Bankman and Fried of siphoning millions of dollars from FTX for their personal gain and causes.
In response to the lawsuit, attorneys representing Bankman and Fried vehemently denied the allegations and criticized John Ray III, who was appointed CEO when FTX sought bankruptcy protection. They portrayed the legal action as an attempt to intimidate the couple just days before their child's trial and dismissed the claims as entirely false.
The lawsuit also sheds light on a scheme in which Bankman-Fried allegedly provided his parents with a nontaxable "gift" of $10 million. This scheme involved Bankman-Fried receiving a loan from Alameda and subsequently transferring the money to his parents. The complaint characterizes this transaction as part of a broader pattern to enrich themselves.
Moreover, the lawsuit alleges that over $18.9 million in FTX funds were utilized to purchase a luxurious 30,000-square-foot residence in the Bahamas for Bankman and Fried. Additionally, it claims that they benefited from over $90,000 in FTX-funded expenses to furnish and maintain the property.
Simultaneously, the lawsuit contends that Bankman directed more than $5.5 million in charitable contributions from FTX to Stanford University in what it describes as "naked self-dealing," alluding to an attempt to gain favor with and enrich his employer at the expense of FTX. Fried is also accused of encouraging unlawful political contributions, including to a political action committee called "Mind the Gap," which she co-founded and served as president and chairwoman.
This lawsuit adds another layer of complexity to the ongoing legal battle surrounding FTX, raising questions about the extent of the alleged financial misconduct and the potential impact on Sam Bankman-Fried's upcoming trial.