FTX, the crypto exchange that recently filed for bankruptcy protection, is now embroiled in a legal battle with the parents of its founder, Sam Bankman-Fried. In a lawsuit filed in federal court in Delaware, FTX accuses Joe Bankman and Barbara Fried, both Stanford law professors, of enriching themselves through their access and influence within the company.
According to the lawsuit, Mr. Bankman and Ms. Fried received a $10 million cash gift from their son, as well as a $16.4 million home in the Bahamas that was purchased by the exchange. The lawsuit also alleges that Mr. Bankman helped cover up complaints by a former lawyer for his son’s business, and that Ms. Fried coached Mr. Bankman-Fried and another FTX executive to evade disclosure requirements for political donations. FTX is seeking to claw back the millions of dollars received by the couple.
The lawsuit claims that the couple either knew or ignored red flags indicating that their son and other FTX insiders were involved in fraudulent activities. These allegations add to the already existing scrutiny surrounding Mr. Bankman and Ms. Fried’s involvement in FTX. Mr. Bankman, a tax professor, was an FTX employee heavily involved in the company’s philanthropic efforts, while Ms. Fried, a respected scholar, ran a political-donor network that her son helped finance.
Lawyers for Mr. Bankman and Ms. Fried have denied the claims, stating that they are completely false and accusing FTX of attempting to intimidate them and undermine the jury process ahead of their son’s criminal trial. Mr. Bankman-Fried has been charged with orchestrating a scheme to use customer deposits for various investments, donations, and property purchases. He has pleaded not guilty and is scheduled to go on trial in October.
The collapse of FTX resulted in an $8 billion deficit in the company’s accounts, leading to its bankruptcy filing. This situation has led to increased scrutiny of Mr. Bankman and Ms. Fried. The lawsuit alleges that Mr. Bankman arranged millions of dollars in loans for top FTX employees and complained about his salary, while also benefiting from extravagant expenses and appearances in company commercials. Ms. Fried, on the other hand, allegedly advised her son on political donations and encouraged strategies to avoid campaign finance disclosure rules.
Federal prosecutors have accused Mr. Bankman-Fried of orchestrating a straw donation scheme, and two of his top advisers have pleaded guilty to participating in it. The lawsuit also reveals that FTX paid for the Bahamas property where Mr. Bankman and Ms. Fried stayed, despite their claims that they did not believe they owned it. FTX even covered the fees associated with their permanent residency applications in the Bahamas.
As the legal battle between FTX and Mr. Bankman and Ms. Fried unfolds, the crypto industry continues to face scrutiny and regulatory challenges. The outcome of this case will likely have implications for the future of crypto exchanges and their governance structures.