Defunct cryptocurrency exchange FTX has taken legal action against former employees of its Hong Kong affiliate company, Salameda, in an effort to recover $157.3 million.
According to court documents filed on September 21, FTX alleges that this substantial sum was fraudulently withdrawn just hours before the exchange filed for bankruptcy.
The lawsuit targets several individuals, including Michael Burgess, Matthew Burgess, Lesley Burgess, Kevin Nguyen, and Darren Wong, along with two other companies. FTX claims that these entities were linked to registered accounts on FTX.com and FTX US, from which they withdrew funds during the "preference period" prior to FTX's bankruptcy declaration.
The court filing asserts that these transfers to defendant Michael Burgess were executed with the intention of hindering, delaying, or defrauding FTX US's present or future creditors. Notably, these transfers occurred shortly before FTX suspended all non-fiat user withdrawals on November 8, 2022.
The lawsuit also alleges that Matthew Burgess pressured FTX employees to expedite specific pending withdrawal requests from one of Michael Burgess's FTX US exchange accounts. This was purportedly done while misrepresenting the account as his own, with evidence cited from messages on the messaging platform Slack.
The legal action against these former employees is just one part of FTX's multifaceted strategy to reclaim assets. Bloomberg reports that the bankruptcy proceedings have attracted the interest of external investors and speculators, including notable distressed-debt investors such as Silver Point Capital, Diameter Capital Partners, and Attestor Capital.
These entities have seized the opportunity to acquire discounted FTX claims, anticipating that the protracted bankruptcy process will uncover additional valuable assets. Court records reveal that they have already purchased over $250 million worth of FTX debts since the beginning of the year, according to a Bloomberg analysis.
While legal actions are in progress, some funds are being voluntarily returned. Stanford University, where FTX's co-founders Sam Bankman-Fried and Gary Wang held teaching positions, announced its decision to return millions of dollars received from FTX and its associated entities. According to court documents, Stanford received gifts totaling approximately $5.5 million from FTX-related entities between November 2021 and May 2022.
All the while this is unfolding, former FTX CEO Sam Bankman-Fried (SBF) still remains in custody, awaiting the start of his two-part trial scheduled for October 3, 2023, and March 2024.
More Legal Action To Go Around
In a related legal development, the Bankman-Fried family, embroiled in FTX's legal quagmire, has adopted a risky strategy that has raised eyebrows across the legal spectrum. Their approach involves shifting blame onto the prestigious law firm Sullivan & Cromwell, an audacious move aimed at establishing an "advice of counsel" defense. This strategy paints Sam Bankman-Fried as a well-intentioned individual who received "poor legal advice," thereby distancing him from FTX's tumultuous downfall.
The heart of this strategy centers on Sullivan & Cromwell's substantial legal fees, which have exceeded a staggering $100 million in the FTX bankruptcy case. While this enormous sum has led to ethical concerns, it doesn't necessarily imply legal wrongdoing on the part of the law firm.
However, the Bankman-Fried family's audacious maneuver may inadvertently open doors to new evidence for prosecutors. By blaming their lawyers, they risk waiving attorney-client privilege, potentially granting prosecutors access to previously off-limits documents and conversations.
Moreover, this defense strategy shines a spotlight on Sam Bankman-Fried's father, who played an active role in critical business decisions, including the creation of FTX's notorious FTT token. Intriguingly, Sam's father also received a substantial $10 million from FTX funds, which he has yet to return, presumably earmarked for his son's legal defense.
The Bankman-Fried family's attempt to discredit Sullivan & Cromwell introduces complexity to an already intricate legal case. However, its effectiveness and potential ramifications remain uncertain. As the legal proceedings unfold, the implications of these strategies on the case and the public's perception of the family remain to be seen.
In essence, by shifting blame to their legal counsel, the Bankman-Fried family's strategy is a high-stakes gamble that could either bolster their defense or inadvertently provide more ammunition for prosecutors.