By Thaler
Bankrupt crypto exchange FTX sued its jailed founder Sam Bankman-Fried’s parents for “millions of dollars in fraudulently transferred and misappropriated funds.”
FTX’s debtors claimed in a lawsuit filed in Delaware bankruptcy court on Monday that Joseph Bankman and Barbara Fried – both longtime Stanford Law School professors – “exploited their access and influence within the FTX enterprise to enrich themselves, .. and knowingly at the expense of debtors.”
Bankman and Fried received a $10 million cash gift from their son, who also gave them a $16.4 million luxury property in the Bahamas, where FTX was headquartered, the court filing said.
It was revealed in July – just before Bankman-Fried’s bail hearing where a federal judge ordered him to report to jail in August – that the disgraced FTX boss has since used the so-called “Bankman Gift Transfer” for $10 million “containing debtor assets” to pay for his expensive legal defense.
“Bankman and Fried also pushed for tens of millions of dollars in political and charitable contributions,” including a donation from FTX’s sister hedge fund, Alameda Research, to the tune of $4 million, “which were seemingly designed to boost Bankman and Fried’s professional and social status at the expense of the FTX Group,” the latest filing said.
Now, FTX’s debtors – led by John J. Ray III, who’s been serving as FTX’s CEO to lead the company through its complex bankruptcy – are seeking to claw back some of those financial losses, though the exact damages to be paid will be determined at a later trial.
Sean Hecker, counsel for Joe Bankman, and Michael Tremonte, counsel for Barbara Fried, told that the claims in the lawsuit are “completely false.”
“This is a dangerous attempt to intimidate Joe and Barbara and undermine the jury process just days before their child’s trial begins,” Hecker and Tremonte added. “Mr. Ray and his massive team of lawyers, who are collectively running up countless millions of dollars in fees while returning relatively little to FTX clients, know better.”
The court papers also ask the judge to award the FTX estate damages, meaning Bankman and Fried’s Bahamas home – which their son has claimed he didn’t know was listed under his parents’ names – could be sold.
The 30,000-square-foot mansion, referred to in the court documents as “Blue Water,” was paid for by FTX debtors in a cash payment that totaled $18,914,327.82, inclusive of all costs, taxes, and fees,” the court documents said.
The transaction took place from February to March 2022, at which time two wire transfers were initiated from FTX’s digital markets account.
“Internal documents described Blue Water as an ‘Alameda receivable” and a property “reconveyed to/purchased for employees,’” according to the lawsuit, which noted that Bankman-Fried’s parents were not FTX staffers.
FTX’s lawyers go on to confirm that Blue Water was Bankman and Fried’s home by pointing to a series of emails, including one where Bankman invited an FTX executive “to celebrate the house you helped us buy/move into.”
Other messages showed that cleaning and maintenance services were also routinely scheduled at the waterfront property. Bankman also asked the landscaping company if they could “bill to FTX directly,” according to the court documents.
To date, Blue Water racked up $90,000 in expenses, “which were paid for with funds originating from FTX,” the filing added.
FTX debtors also reportedly paid the $15,000-per-person fee required for Bankman and Fried to each receive Bahamian permanent residency.
TNH has sought comment from FTX debtors’ counsel at Landis Rath & Cobb.
Bankman-Fried was jailed last month for leaking his ex-girlfriend Caroline Ellison’s personal writings and is awaiting the start of his highly-anticipated fraud case that’s set to kick off on Oct. 2.
If convicted on all charges relating to securities fraud and conspiracy fraud counts, the 31-year-old faces up to155 years behind bars.
