FTX, Alameda Research, and over 100 affiliated companies are suing former FTX CEO Sam Bankman-Fried, FTX co-founder Gary Wang, and former FTX senior executive Nishad Singh.
They allege that the acquisition of stock clearing platform Embed was significantly overpriced just weeks before FTX’s collapse. FTX’s current leadership claims that Bankman-Fried and others knew Alameda Research was insolvent when they finalized the $250 million deal.
The lawsuit alleges that fraudulent funds from FTX customers were used for the acquisition. Separate suits also target Embed’s founder Michael Giles and early investors, including Propel Venture Partners. Giles and Embed shareholders are not accused of wrongdoing.
Lawyers representing FTX aim to reclaim the money, arguing that Alameda was already insolvent and that an inflated price was paid for Embed. The lawsuits seek to maximize repayment to FTX and Alameda’s creditors during the bankruptcy process.
In a revelation that has surfaced from internal messages quoted in the filing, two senior employees raised concerns on June 27 about the Embed platform’s inability to accommodate around 600 new user accounts during the gradual release of FTX Stocks. This comes as a surprise considering the release plan aimed for Embed to handle 10,000 new accounts.
According to FTX’s bankruptcy lawyers, the due diligence conducted on Embed was minimal, with FTX accepting significant terms proposed by Giles, the founder, CEO, and sole representative of Embed during the negotiation. Shockingly, Giles personally received approximately $157 million as part of the acquisition deal and a $55M retention bonus.
FTX’s bankruptcy representatives further argue that the retention bonus agreement was highly unusual. It only bound Giles to Embed until the deal’s closure, rather than ensuring his continued involvement in running the company thereafter. Moreover, as the largest shareholder of Embed, Giles received an additional sum exceeding $100 million for his equity.
FTX’s lawyers reveal that attempts to sell the company post the Embed acquisition have fallen flat, with no interested buyers willing to pay anywhere near the original purchase price. Surprisingly, Michael Giles, the founder of Embed, made the highest bid of $1 million to repurchase the company.
According to FTX’s caretaker leadership, the outcome of the bidding process, including Giles’ offer representing a mere 0.45% of the initial purchase price, clearly indicates that the $220 million paid for Embed was excessively inflated compared to its actual value.
The lawyers argue that the bidders recognized a crucial oversight made by the FTX Group and FTXInsiders—that Embed’s highly acclaimed software platform was essentially worthless.
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