broke crypto Exchange FTX is trying to recover more than US$240 million (almost 2,000 crore rupees) it paid for the stock trading platform Embedsaid former FTX insiders did not do any research before purchasing the essentially worthless, bug-ridden software platform.
FTX filed three lawsuits in the US Bankruptcy Court in Delaware late Wednesday, targeting former FTX insiders, including accused founder Sam Bankman-Fried, Embed executives including founder Michael Giles, and Embed shareholders. FTX alleged that Bankman-Fried and other FTX insiders misappropriated company funds to purchase shares in Embed as part of the transaction.
FTX completed the Embed acquisition just six weeks before the crypto exchange went bankrupt in November. FTX lost billions in client funds while funding its own risky investments, a practice its current CEO, John Ray, has described as “old-fashioned embezzlement.”
FTX’s new management has been trying to recover assets to pay back customers since filing for bankruptcy. US law allows debtors, in certain circumstances, to recover payments made shortly before a bankruptcy filing and use those funds to repay other creditors.
FTX recently attempted to sell Embed, but the highest bidder was Giles, who bid just $1 million (nearly 8.27 crore rupees).
FTX’s auction “leaves no doubt” that the $220 million (nearly Rs.1,820 crore) the company spent acquiring Embed “compared to the fair value of the company, something Giles well knew.” , were grossly inflated,” FTX wrote in its lawsuit.
FTX intended to use Embed’s software to add stock trading to its crypto exchange platform, but Embed’s software is “essentially worthless,” the lawsuits allege. FTX did almost no research on Embed and “prioritized speed over everything else,” they added.
Embed’s own insiders were surprised that FTX paid so much for the company after little more than meeting Giles, and in internal messages described FTX’s approach to due diligence with a cowboy emoji.
As part of the purchase, FTX also paid Embed employees US$70 million (nearly Rs.580 crore) in retention bonuses. The bulk of it went to Giles, who later worried about explaining his $55 million (nearly Rs.455 crore rupees) bonus to other Embed shareholders, the lawsuits say.
FTX is seeking to recoup $236.8 million (nearly Rs.1,959 crore) from Giles and Embed insiders and $6.9 million (nearly Rs.57 crore) from Embed minority shareholders.
© Thomson Reuters 2023
