Debtors of bankrupt FTX cryptocurrency exchange have launched legal action against parents of FTX founder Sam “SBF” Bankman-Friedalleging that they embezzled millions of dollars through their participation in the stock market business.
Attorneys for FTX's debtors and debtors-in-possession, represented by the law firm Sullivan & Cromwell, archived a lawsuit against SBF's parents, Joseph Bankman and Barbara Fried, on September 18.
The plaintiffs argued that Bankman and Fried exploited their access and influence within the FTX empire to enrich themselves at the expense of debtors in FTX's bankruptcy estate. The debtors alleged that SBF's parents were "heavily involved" in the FTX business from its inception until its collapse, contrary to SBF's claims.
“Back in 2018, Bankman described Alameda as a 'family business,' a phrase he repeatedly used to refer to the FTX Group. Even when the FTX Group fell into insolvency, Bankman and Fried profited greatly from this 'family business,'” the complaint reads.
According to the plaintiffs, SBF's father, a Stanford Law School professor, had broad authority to make decisions on behalf of FTX Group as its "de facto officer." Bankman also held executive positions on FTX Group's management team, the debtors argued.
SBF's mother, also a Stanford Law School professor, was active in FTX's political donations, the plaintiffs wrote. According to the accusations, Fried was the "most influential advisor" in Political contributions of the FTX Grouprepeatedly calling on FTX to donate millions directly to Mind the Gap (MTG), a political action committee she co-founded.
According to the complaint, Bankman and Fried obtained significant undeserved rewards for their involvement in FTX Group, including a Cash gift of 10 million dollars and a $16.4 million luxury property in the Bahamas. Bankman also diverted money from FTX Group to cover costs, including privately chartered planes and $1,200-per-night hotel stays, the plaintiffs alleged.
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By draining FTX Group of funds for their benefit, Bankman and Fried knew or ignored red flags that revealed their son was orchestrating a fraudulent scheme to advance his personal and charitable interests at the debtors' expense, the plaintiffs said. The debtors asked the court to hold Bankman and Fried accountable for their misconduct and recover assets for the debtors' creditors, stating:
"Award plaintiffs punitive damages in an amount to be determined at trial as a result of defendants' knowing, willful, wanton and malicious conduct exhibiting reckless disregard for the interests of plaintiffs and their creditors."
As previously reported, Bankman and Fried began face professional problems at Stanford Law School shortly after the collapse of FTX. In late 2022, SBF's parents also allegedly said friends that their son's legal bills would likely ruin them financially.
Once a major cryptocurrency exchange, FTX ceased operations and filed for Chapter 11 bankruptcy in mid-November 2022. Founder and former CEO of FTX SBF was subsequently arrested and charged with 13 counts, including fraud, money laundering and bribery of officials. SBF's first of two trials is scheduled to begin on October 3, where he will face seven charges related to fraudulent activities involving user funds at FTX and Alameda Research.
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