The bankrupt cryptocurrency exchange FTX and its affiliated entities have sued Joseph Bankman and Barbara Fried, the parents of Sam Bankman-Fried (SBF), the disgraced founder and former CEO of the company, for breaching their fiduciary duties and executing fraudulent transfers that led to unjust enrichment.
According to a Monday filing at the United States Bankruptcy Court for the District of Delaware, FTX seeks to recover millions of dollars fraudulently transferred and misappropriated by SBF’s parents.
FTX Goes After SBF’s Parents
In the complaint, FTX accused Bankman and Fried of exploiting their access and influence within the bankrupt estate to enrich themselves knowingly at the expense of the enterprise’s debtors. While the company presented itself to investors and the public as a sophisticated group of crypto exchanges and businesses, it was run as a family business fueled by fraud to benefit a group of insiders.
Bankman and Fried, both Stanford Law School professors, played key roles in perpetuating FTX’s culture of misrepresentations and gross mismanagement. They helped to cover up allegations that would have exposed FTX’s fraudulent activities. SBF’s father helped the company’s management to evade taxes due to his deep understanding of tax law.
“Given his background and positions, and the ear of his son Bankman-Fried, Bankman was well-placed to insist on and implement internal controls and raise alarms about the misconduct within the FTX Group. Bankman, instead, stayed silent and, in at least one instance, helped hush a complainant whose allegations threatened to expose the fraud within the FTX Group,” the plaintiffs said.
On the other hand, Fried was responsible for SBF’s political contribution strategy. She encouraged her son and other insiders to avoid federal campaign finance disclosure rules by engaging in straw donations and hiding that the FTX group was the source of the contributions.
Plaintiffs Seek Damages and Disgorgement
Due to their roles in the fraudulent management of FTX, Bankman and Fried enjoyed many benefits, including $1,200-per-night hotel stays, cash gifts, luxury properties worth tens of millions of dollars, plane tickets, and salaries. They also facilitated millions in donations to Stanford University to boost their professional and social status.
FTX charged SBF’s parents with 12 counts of allegations, including fraudulent transfers, unjust enrichment, and breaches of fiduciary duties. The plaintiffs seek damages to be determined during trial and disgorgement of all compensation paid to the defendants.