FTX sues SBF, others for a “worthless” fintech company

Bankrupt crypto exchange FTX sued Sam Bankman-Fried (SBF) and other former executives of the company for the $250 million acquisition of stock clearing platform Embed.

According to a May 17 lawsuit, SBF and other executives — Nishad Singh and Gary Wonder — knew Alameda Research was insolvent and still went ahead with the deal. Beyond that, the lawsuit claimed the deal was significantly overpriced.

FTX liquidators filed the lawsuit in the US Bankruptcy Court for the District of Delaware. Part of their allegations is that SBF and his co-principals knowingly took FTX customers’ funds to complete the acquisition on behalf of Alameda.

Meanwhile, FTX has also filed a lawsuit against Embed co-founder Michael Giles and other early investors, including venture capital firm Propel Ventures Partners. This lawsuit aims to recover funds from what FTX liquidators describe as a bad deal.

Office reportedly now worthless

The lawsuit alleges that the former FTX management made a terrible deal and there was a complete lack of due diligence. Backing up these claims are internal reports that the platform cannot “handle approximately 600 new user accounts” even though the release plan specified 10,000.

The court document claims that as of March 31, 2022, Embed had assets worth $37 million and had a profit of $25,000.

Yet FTX management under SBF not only paid for the equity, but also gave a $55 million retention bonus to Embed’s co-founder and CEO at the time. The bonus did not require him to stay with the company.

“WRS paid far more than fair or reasonably equivalent value for Embed and awarded Giles an extravagant and unjustified retention bonus as an incentive to complete the acquisition quickly.”

Also, attempts to sell the fintech platform showed that no investor would pay more than $1 million for the company. The filing revealed that co-founder Giles was the only investor willing to pay that amount.

“Of the eleven other potential bidders, only one submitted a final bid after conducting more extensive due diligence, for only $250,000, and only for Embed’s assets; The debtors would have been left responsible for all of Embed’s obligations.”

The lawsuit further exposes FTX’s template corporate governance practices under the SBF

While the lawsuit brings new revelations about FTX, it generally showed the company’s poor practices and lack of due diligence when SBF was in charge.

The lawyers claim that SBF paid far more than the value for the company. Since liquidators took over FTX, attempts to sell Embed have not been successful as no one wanted to spend that much for it.

“They performed almost no due diligence on Embed and accepted the significant terms proposed by Giles, Embed’s founder, CEO and sole representative during the negotiations, who personally received approximately $157 million in connection with the acquisition.”