FTX’s legal team has filed a lawsuit against its former CEO, Sam Bankman-Fried, co-founder Zixiao Wang, and a former high-ranking executive, Nishad Singh, alleging neglect in due diligence in the $220 million acquisition of the stock-clearing platform, Embed.
In a filing dated May 17, it was claimed that FTX, through its U.S. subsidiary, paid $220 million for Embed while reportedly conducting “almost no due diligence” on the platform.
FTX filed for bankruptcy and was given approval by the overseeing judge to sell Embed along with other assets. However, the highest bid received for the platform was a mere $1 million, leading FTX’s lawyers to state that the platform’s software was essentially worthless – something they accuse the FTX group and insiders of failing to realize prior to the acquisition.
FTX’s lawyers note that of the 12 entities expressing non-binding interest, all but one declined to submit a final bid after thorough due diligence. The sole remaining bidder was Michael Giles, Embed’s founder, and former CEO.
FTX’s lawyers further allege that Giles personally received approximately $157 million during the acquisition. However, his final bid to reclaim ownership of Embed was only $1 million, subject to closing reductions.
They also claim that misleading records were produced to mask Alameda Research’s involvement in the Embed acquisition’s funding. They argue that funds were moved between FTX entities, contrary to claims that they came from Bankman-Fried, Singh, and Wang.
FTX is seeking to have the transactions designated as “avoidable fraudulent transfers and obligations, and/or preferences,” and wants the defendants’ claims disallowed until FTX recovers the funds lost in avoidable transfers.
After filing for bankruptcy in November 2022, FTX’s new leadership has been intent on recovering funds to reimburse customers and creditors, and is contemplating a potential relaunch of the exchange.
