FTX sues Bankman-Fried and former executives
Amy Howe – 24 July 2023
FTX’s new executive team has launched a lawsuit against founder and ex-chief executive Sam Bankman-Fried, as well as three former executives. In the complaint filed in Delaware bankruptcy court, the bankrupt crypto exchange is seeking to recoup $1 billion from the former executives after reports surfaced alleging that the four defendants had misappropriated investor assets. FTX claims that said assets were fraudulently used by the defendants to purchase property, among other things, and included cash transfers. The lawsuit is an attempt to recover funds in order to repay creditors.
As reported by Reuters, FTX claims the alleged transfers took place shortly before the company filed for Chapter 11 protection. According to US bankruptcy code, transfers made within two years in advance of a bankruptcy filing which are found to be fraudulent can be reversed. It’s worth noting that while in the US, the term bankruptcy is used to describe insolvency procedures that apply to companies, in the UK, the term applies to individuals only.
So, what’s the likelihood of FTX’s success with the lawsuit? It’s not looking good for Bankman-Fried and his associates. Thanks to it’s ‘business-friendly’ laws, Delaware bankruptcy court is known to be the preferred choice for companies looking to recover from bankruptcy. What’s more, FTX’s new chief executive John Ray is a restructuring veteran who oversaw former energy trader Enron’s 2001 bankruptcy proceedings.
Though the proceedings are under US bankruptcy law, it’s an interesting case for those interested in bankruptcy/restructuring law to follow worldwide. You can find out more about restructuring and insolvency law in the UK here.