FTX Sues SBF As It Looks To Recover $240M From Embed Acquisition

Bankrupt crypto exchange FTX and its sister entity Alameda Research have sued their former executives Sam Bankman-Fried, Gary Wang, and Nishad Singh.

The new management at FTX alleges that its former executives mismanaged funds and failed to conduct proper due diligence before acquiring Embed.

FTX Moves To Claw Back Funds

The move is part of a series of lawsuits filed by FTX’s new leadership as they look to recover around $240 million connected to FTX’s acquisition of stock trading platform Embed Financial Technologies. Embed closed weeks before FTX filed for bankruptcy. The move is viewed as the first formal action by current FTX CEO John Ray against the company’s former management and executives. The plaintiffs in the suits filed include FTX, its sister hedge fund Alameda Research, and West Realm Shires (WRS) Inc. The latter is the corporate entity under which FTX US operated as a cryptocurrency trading company.

The lawsuit was filed in the United States Bankruptcy Court for the District of Delaware, aiming to retrieve the funds spent during the acquisition.

Details Of The Lawsuit

According to documents filed with the court, FTX, Alameda Research, and West Realm Shires have accused former management of taking advantage of lax controls and a lack of recordkeeping and inflating the value of Embed. The papers further state that the management went on to purchase the platform for far more than it was worth. Furthermore, the lawsuit states that the defendants, addressed as “FTX Insiders” in the lawsuit, failed to conduct any sort of due diligence on Embed, instead prioritizing speed over all else in the transaction.

As a result, they ended up accepting all the terms set by Embed Founder and CEO Michael Giles during the negotiations. The lawsuit further added that Giles walked away from the negotiations after securing a deal worth around $157 million and an “extravagant and unwarranted retention bonus” as an incentive to wrap up the deal as quickly as possible. Negotiations with Giles began at the end of March 2022, with both parties signing a “Memorandum of Terms” by mid-April 2022. This gave the platform an enterprise value of $220 million, with a $75 million retention bonus to employees. This figure included the $55 million paid to Giles.

The deal was finaliz

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Author: Amara Khatri

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