FTX founder Sam Bankman-Fried’s parents are facing a lawsuit over allegations of receiving improper funds from the cryptocurrency exchange prior to its collapse. In a legal submission, administrators of the bankrupt company claim that the couple knowingly accepted millions of dollars in wrongfully transferred funds and turned a blind eye to misconduct within the company.
The lawsuit has been initiated on behalf of individuals owed money following the company’s downfall, which ultimately led to the arrest of Bankman-Fried last year. The former billionaire, once hailed as the “Crypto King,” is currently facing accusations from U.S. prosecutors for the unlawful transfer of millions from the exchange. Bankman-Fried has denied these charges and is currently incarcerated, awaiting trial scheduled for October.
In response to the allegations against his parents, their attorneys have refuted the claims, asserting that they are entirely baseless and intended to harm their son’s prospects in court.
The lawsuit, which is part of a broader bankruptcy proceeding, contends that Bankman-Fried’s parents, who were both employed as professors at Stanford University at the time, exploited their influence and connections within FTX. Through these means, they allegedly enriched themselves, both directly and indirectly, with substantial sums amounting to millions of dollars.
According to the lawsuit, the couple received a $10 million cash gift from funds associated with Alameda, a partner company of FTX. Additionally, FTX bestowed upon them a property in the Bahamas valued at $16.4 million.
FTX, once a dominant force in the global cryptocurrency trading arena, boasted assets estimated at approximately $15 billion in 2021. However, it succumbed to insolvency last year when a sudden rush of customer withdrawal requests exposed a significant shortfall in the company’s financial resources, purportedly reaching as high as $8 billion.
Administrators of the bankrupt company allege that Bankman-Fried, along with other insiders, treated FTX as a personal “piggy bank,” with his parents either facilitating or benefiting from this fraudulent behavior. The legal filing further claims that Allan Joseph Bankman, an expert in U.S. tax law, served as an advisor to FTX. He is alleged to have played a major role in perpetuating a culture of deceit and gross mismanagement, actively participating in covering up allegations that could have exposed the fraud. The filing also asserts that Bankman enjoyed luxurious hotel stays costing $1,200 per night, while correspondence cited in the lawsuit includes complaints about his $200,000 salary, which he claimed should have been $1 million.
Simultaneously, Barbara Fried is accused of overseeing her son’s political donations and encouraging strategies to obscure their origins.
The mess being uncovered about the way FTX was run serves as a stark reminder to other crypto industry players such as Marathon Digital Holdings Inc. (NASDAQ: MARA) that while blockchain technology may be a novel technology that can revolutionize various industries, sound-management practices that have enabled other existing industries to thrive also have a place in crypto.
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