FTX Founder Accused: Misuse Of Assets For Personal Gain
FTX, the cryptocurrency exchange that filed for bankruptcy in November 2022, has alleged in a complaint filed in Wilmington, Delaware, bankruptcy court that its founder, Sam Bankman-Fried, engaged in a scheme to fraudulently utilize company assets for personal benefit. The complaint accuses Bankman-Fried of being a “profligate patron” who showered cash on Michael Kives, his firm K5 Global, and co-founder Bryan Baum.
FTX on Thursday sued a former aide to Hilary Clinton and the former aide's investment firm, seeking to claw back $700 million. SBF authorized the transfer of $700 million to K5 entities in 2022, and he leaned on K5's celebrity and business connections in his effort to obtain…
— Wu Blockchain (@WuBlockchain) June 23, 2023
K5 Connections
According to the lawsuit, Bankman-Fried authorized the transfer of a staggering $700 million to K5 entities in 2022. He allegedly relied on K5’s extensive celebrity and business connections in an attempt to secure rescue financing shortly before FTX’s bankruptcy. The complaint cites Bankman-Fried describing Kives, a former aide to Hillary Clinton and a Hollywood agent for prominent figures like Arnold Schwarzenegger and Katy Perry, as the “most connected person” he had ever encountered.
The complaint further alleges that Bankman-Fried disregarded concerns raised by FTX employees regarding K5’s intentions, persisting in his investments to enhance his own political and social influence. FTX claims that Bankman-Fried authorized investments in K5 projects that solely benefited Kives and Baum, with no return for FTX or its customers who ultimately bore the financial burden.
One specific dubious investment highlighted in the complaint involves Bankman-Fried-controlled shell company using $214 million from FTX to acquire a minority stake in Kendall Jenner’s 818 Tequila brand. Notably, the tequila company’s assets were valued at just $2.94 million, according to filings with the U.S. Securities and Exchange Commission at the time.
Bankman-Fried Pleads Not Guilty
In response to the lawsuit, K5 asserted that they believed Bankman-Fried to be legitimate, entering into a fair and mutually beneficial business relationship. K5’s spokeswoman, Elizabeth Ashford, emphasized their disappointment with the allegations and expressed their understanding that others were similarly convinced of Bankman-Fried’s legitimacy.
At present, Bankman-Fried has pleaded not guilty to charges accusing him of defrauding FTX customers by utilizing their funds to support his high-risk investments. Since the bankruptcy filing, FTX’s new leadership has successfully recovered over $7 billion in assets, which can be utilized to repay customers who had their funds frozen during the collapse of the crypto exchange.
FTX has also initiated lawsuits regarding its pre-bankruptcy investment in the stock platform Embed and its payments to Genesis Global Capital, the bankrupt lending arm of crypto firm Genesis. In a recent development, FTX announced a settlement with the Metropolitan Museum of Art, wherein the museum agreed to return $550 million in donations it received from FTX companies in 2022.
