FTX, a prominent cryptocurrency exchange, has recently filed a lawsuit against its former chief, Sam Bankman-Fried (SBF), along with co-founder Zixiao Wang and executive Nishad Singh. The legal action stems from the contentious $220 million acquisition of Embed, a stock-clearing platform. FTX’s lawyers allege that insufficient due diligence was conducted prior to the acquisition, leading to the current legal battle.
The lawsuit gained traction following FTX’s bankruptcy filing, which prompted the court overseeing the proceedings to authorize the sale of Embed and other FTX assets. However, disappointingly, the highest bid for the platform amounted to a mere $1 million. FTX’s lawyers emphasized in their filing that the software platform offered by Embed turned out to be essentially worthless, providing grounds for FTX’s lawsuit against Sam Bankman-Fried.
Twelve entities initially expressed interest in the acquisition, with the largest bid amounting to $78 million. However, after a thorough evaluation, all but one entity declined to submit a final bid. The remaining bidder was Embed’s founder and former CEO, Michael Giles, who made an offer of $1 million to regain ownership of the platform.
The legal representatives for FTX argue that Giles had personally received approximately $157 million from the FTX-Embed deal. However, his subsequent offer to reclaim control of Embed was significantly lower at just $1 million, subject to potential reductions.
Furthermore, the lawyers also accuse FTX’s management of exploiting the lack of control within FTX Group. They claim that the company misused client funds to finance the Embed acquisition. Additionally, they assert that senior management was fully aware of the company’s insolvency during the final stages of the deal. The attorneys further allege that false records were created to conceal Alameda’s financing of the Embed transaction.
The collapse of FTX stands as a significant financial disaster within the cryptocurrency industry. This event, combined with the earlier collapses of Terraform Labs, Celsius, Voyager Digital, and others, has exposed numerous loopholes and issues within the crypto sector. The incident serves as a reminder to retail investors about the importance of securely storing their cryptocurrencies in hardware wallets, away from exchanges.