New FTX Administration Sues SBF, Other Executives Over $250M Acquisition Deal

The new FTX administration led by John Ray III and bankrupt crypto hedge fund Alameda Research are accusing both companies’ founder Sam Bankman-Fried and other former executives of the bankrupt crypto empire of not conducting proper due diligence on acquiring a $250 million acquisition of stock clearing platform Embed.

According to the new FTX administration, Bankman-Fried, ex-director of engineering Nishad Singh and FTX co-founder and former chief technology officer Gary Wang, knew that Alameda was insolvent but they still agreed with the substantially overpriced deal with Embed. The new leadership accused them of inflating the platform’s stock valuation before the historical collapse of the now-bankrupt centralized cryptocurrency exchange FTX, Wednesday court filings show.

It is worth noting that this latest legal development is the first formal action from the new FTX administration against the former executives and management of the crypto empire.

The lawsuit, which was filed this week in the U.S. Bankruptcy Court for the District of Delaware, intends to claw back $250 million the former management spent during the acquisition of Embed.

The lawsuit also alleges that Bankman-Fried and his inner circle deliberately swiped the funds of FTX customers to close the deal on behalf of Alameda Research.

The new FTX administration also charges Embed co-founder Michael Giles, who allegedly took home $157 million and an “extravagant and unwarranted retention bonus” for sealing the deal very quickly, and other investors, including the venture capital firm Propel Ventures Partners.

As of March 31, 2022, Embed had $37 million in assets and $25,000 in profits, but Bankman-Fried’s leadership not only paid for shareholders’ equity but also shed a $55 million retention bonus to Giles, an incentive, which did not require the Embed CEO at the time, to remain at the company, court filings revealed.

The new FTX admin tried to sell Embed but no investor was willing to pay for over $1 million for the fintech company, with only its co-founder Giles expressing interest to purchase Embed at $250,000.

“Of the eleven other potential bidders, only one submitted a final bid after conducting more comprehensive due diligence, for a mere $250,000, and only for Embed’s assets; the Debtors would have been left responsible for all of Embed’s liabilities,” the lawsuit said.

“They performed almost no due diligence on Embed and accepted the significant terms proposed by Giles, Embed’s founder, CEO, and sole representative during the negotiation, who personally received approximately $157 million in connection with the acquisition,” lawyers of the new FTX administration argued.