FTX’s new leadership team filed a series of lawsuits late Wednesday in an effort to recover some $240 million in connection with the cryptocurrency exchange’s acquisition of stock trading platform Embed, which closed just weeks before FTX filed for bankruptcy.
The plaintiffs in all three suits include FTX sister hedge fund Alameda Research and West Realm Shires (WRS) Inc., which is the corporate entity under which FTX US operated as a crypto trading company.
The FTX debtors sued founders Sam Bankman-Fried, Nishad Singh and Zixiao “Gary” Wang, Embed founder Michael Giles and an array of Embed shareholders, claiming FTX can claw back the funds under bankruptcy law and that the funds for the acquisition came from Alameda and were misappropriated.
WRS had purchased Embed with the aim of building its empire by providing FTX.US customers the ability to trade stocks on its platform in addition to crypto assets.
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But the complaints allege FTX executives conducted little to no due diligence before acquiring the stock platform and rushed to complete the six-month transaction ahead of the crypto exchange’s collapse.
The suit against Giles points to internal communications from Embed employees that acknowledge that the then-president of FTX.US had discovered “many bugs” in the system ahead of the deal closing and that Giles admitted the platform was “experiencing multiple issues per day.” Another Embed employee replied to Giles, “Deep down, it’s why I want to accelerate the signing of the DA [definitive agreement with WRS] … more issues are inevitable.”
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FTX recently tried to sell Embed, but the highest bidder was Giles, who offered only $1 million.
The plaintiffs wrote in the lawsuit that the auction “leaves no doubt” that the $220 million FTX spent to acquire Embed was “wildly inflated relative to the company’s fair value, which Giles well knew,” FTX wrote in its lawsuit. The complaint calls Embed’s software “essentially worthless.”
Embed’s own insiders were surprised that FTX paid so much for the company after little more than a meeting with Giles, describing FTX’s approach to due diligence with a cowboy emoji in internal messages.
As part of the purchase, FTX also paid Embed employees $70 million in retention bonuses. Most of that went to Giles, who later worried how to explain his $55 million bonus to other Embed shareholders, according to the lawsuits.
FTX is seeking to recover $236.8 million from Giles and Embed insiders, as well as $6.9 million from Embed minority shareholders.
Reuters contributed to this report.
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