More than six months after FTX filed for bankruptcy, the legal battle between the new and old leadership continues.
A legal battle is unfolding at FTX, where former CEO Sam Bankman-Fried, along with co-founder Zixiao Wang and senior executive Nishad Singh, is being sued by the company.
At issue is a $220 million purchase of the stock-clearing platform Embed, which the legal team argues lacked proper due diligence.
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The lawsuit, detailed in a May 17th court document, reveals that FTX used $220 million of its US subsidiary's funds to acquire Embed without adequately investigating the platform's worth.
Following FTX's bankruptcy, the presiding judge allowed the sale of Embed, along with other assets. However, potential buyers significantly undervalued the platform, with the highest bid of $1 million. When commenting on the matter, FTX lawyers stated:
The bidders had figured out what the FTX Group and FTX Insiders did not bother to assess prior to the Embed acquisition, namely, that Embed’s vaunted software platform was essentially worthless.
Embed drew initial interest from 12 potential buyers, with non-binding offers reaching up to $78 million. However, after closer scrutiny, all but one of these entities retracted their bids. The final proposal was made by Embed's founder and ex-CEO, Michael Giles.
Giles allegedly pocketed roughly $157 million from the original acquisition. Still, his final bid to repurchase Embed was a modest $1 million, which was subject to further reductions upon finalization of the sale.
FTX lawyers accused the former leadership of gross mismanagement, alleging they exploited weak controls and poor record-keeping to defraud the company. The lawsuit suggests they used misappropriated customer funds for the Embed purchase, knowing FTX was on the brink of insolvency.
The FTX legal team seeks to categorize the transactions as fraudulent or preferential. The lawyers want any claims from the defendants to be disallowed until FTX recovers the funds lost due to these suspect transfers.
FTX declared bankruptcy on November 11th, 2022. Since then, the new management has been trying to recover funds to repay customers and creditors. Plans to relaunch the crypto exchange are also under consideration.