FTX Lawsuit Exposes Alleged Fraud in $220 Million Embed Acquisition
FTX's legal team has initiated a lawsuit against former CEO Sam Bankman-Fried, co-founder Zixiao Wang, and senior executive Nishad Singh regarding acquiring stock-clearing platform Embed, claiming inadequate investigation.
As per a filing on May 17, FTX purchased Embed for $220 million through its U.S. subsidiary without conducting substantial due diligence on the platform.
Following FTX’s bankruptcy filing, the overseeing judge approved the sale of Embed and other FTX assets. However, the highest bid for the platform amounted to just $1 million, leading FTX’s lawyers to assert that the bidders uncovered an essential truth that FTX and its insiders neglected to assess: Embed’s highly regarded software platform was essentially worthless.
While twelve entities expressed interest, with the most substantial indication at $78 million, all except one chose not to submit a final bid after conducting comprehensive due diligence. The sole exception was Embed’s founder and former CEO, Michael Giles.
FTX’s legal team claims that Giles had personally gained approximately $157 million from the acquisition but made a meager bid of $1 million to regain ownership of Embed, subject to reductions at closing.
The lawyers further accused FTX insiders of capitalizing on the company’s lack of controls and recordkeeping to execute a significant fraud by misappropriating customer funds for the Embed purchase. They contend that these insiders were fully aware of the company’s insolvency when finalizing the deal.
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Additionally, the lawyers alleged the creation of misleading records to obscure Alameda Research’s involvement in funding the Embed acquisition. They asserted that funds were transferred between FTX entities, contrary to the claim that Bankman-Fried, Singh, and Wang provided the funding.
FTX seeks to classify these transactions as “avoidable fraudulent transfers and obligations, and/or preferences” and to disallow any claims made by the defendants until FTX recovers the lost funds resulting from these avoidable transfers.
FTX filed for bankruptcy on November 11, 2022, and its new leadership has since focused on recovering funds to repay customers and creditors. They are also considering the possibility of relaunching the exchange.
Alexander Stefanov
Reporter at CoinsPress
Alex is an experienced finance journalist and a cryptocurrency and blockchain enthusiast. With over five years of experience covering the industry, he deeply understands the complex and constantly evolving world of digital assets. His insightful and thought-provoking articles provide readers with a clear picture of the latest developments and trends in the market. His passionate approach allows him to break down complex ideas into accessible and insightful content. Follow up on his content to be up to date with the most important trends and topics - stay ahead of the curve with CoinsPress.
