The legally-mired FTX exchange has sued the parents of its founder Sam Bankman-Fried. A court filing said that Joseph Bankman and Barbara Fried “fraudulently transferred and misappropriated funds”.
Debtors from FTX and its sister hedge fund Alameda Research are now seeking to recover the millions of dollars of damages caused by both parents exploiting “their access and influence within the FTX enterprise to enrich themselves”.
The case also alleged that Bankman was aware of FTX’s fraudulent and shaky business practices. He reportedly silenced whistleblowers to cover up “FTX Insiders’ fraud” and was focused on “wealth preservation”.
FTX: A family-run business
The filing claimed that the FTX Group was a self-described “family business“, where both parents “siphoned millions of dollars out of the FTX Group for their own personal benefit and their chosen pet causes.”
It pointed out the $16.4million purchase of a 30-000 square-foot property in The Bahamas, where “all of the funds were sourced from cash provided by the Debtors”.
Joseph Bankman’s legal role in FTX
Joseph Bankman’s association with the FTX Group dates back to 2018, when he provided both legal and business counsel to Alameda, even without an official title or clear employment terms. With his high position in the legal community and as Sam Bankman-Fried’s father, this “allowed him to play a significant role in the business of the FTX Group”.
By 2021, Bankman had formalised some of his role in an agreement to provide legal services to FTX and Alameda.
Meanwhile, he was receiving millions of dollars in gifts. This included private jet flights, $1,200 per night hotel rooms, tickets to the Formula One French Grand Prix, and appearing in the infamous FTX Super Bowl Commercial.
As well as misappropriating funds, the filing claimed “Bankman was well-equipped to see the true nature of the FTX Group’s business”, which saw his son charged by the SEC for defrauding investors.
The filing pointed to the fact that FTX did not keep appropriate books and records, or security controls in relation to its digital assets.
“Rather than help the FTX Group develop into a mature corporate conglomerate, Bankman focused on wealth preservation and bankruptcy protections for FTX insiders,” the filing said.
It also alleged that Bankman directly helped cover up “FTX insiders’ fraud. The filing said he silenced a whistleblower complaint in 2019, “that threatened to expose the FTX Group as a house of cards”.
Barbara Fried’s connection
While Barbara Fried never officially held a position within FTX, she was still said to have significant involvement in the cryptocurrency exchange. She served as a key advisor on political contributions.
The new court document said: “She in fact used her access and influence to benefit her own organization, MTG, an independent expenditure-only political action committee that she co-founded in 2018 and for which she served as President and Chair.”
It claimed that MTG relied on FTX and Bankman-Fried for funding.
“Fried caused the FTX Group to make, and benefited from, the fraudulent transfer of Debtor property, aided and abetted breaches of fiduciary duties, and was unjustly enriched.”
11 different counts were brought against the parents in this recent filing.
Meanwhile, founder and ex-CEO Bankman-Fried awaits his trial next month.