Sam Bankman-Fried’s parents sued by FTX

For months, John Jay Ray III, the corporate turnaround expert who was appointed to oversee the bankruptcy of crypto exchange FTX, has attacked the company’s founder, Sam Bankman-Fried, accusing him of “old-fashioned embezzlement”.

Now Mr. Ray has a new target: Mr. Bankman-Fried’s parents.

On Monday, FTX filed a lawsuit in federal court in Delaware, accusing Joe Bankman and Barbara Fried, longtime Stanford law professors, of using their “access and influence within the FTX company to s ‘enrich’. The lawsuit seeks to recover millions of dollars the couple received from their son.

In the complaint, FTX lawyers said Mr. Bankman and Ms. Fried received a $10 million cash gift from Mr. Bankman-Fried, as well as a $16.4 million home in the Bahamas, where FTX was based, which had been purchased by the exchange. . The suit also claims that Mr. Bankman helped cover up a former lawyer’s complaints about his son’s business, and that Ms. Fried coached Mr. Bankman-Fried and another FTX executive to evade political donation disclosure requirements.

The couple “either knew – or ignored the bright red red flags – that their son, Bankman-Fried, and other FTX insiders were orchestrating a vast fraudulent scheme,” the lawsuit says.

A spokeswoman for Mr. Bankman and Ms. Fried did not immediately respond to a request for comment.

FTX filed for bankruptcy protection in November, after a run on deposits revealed an $8 billion hole in the exchange’s accounts. The following month, federal prosecutors in Manhattan charged Mr. Bankman-Fried with orchestrating a scheme to use customer deposits to finance billions of dollars in venture capital investments, political donations and purchases luxury real estate. He has pleaded not guilty and his trial is scheduled for October 3.

FTX’s collapse fueled scrutiny of Mr. Bankman and Ms. Fried. A decorated tax professor, Mr. Bankman was an FTX employee heavily involved in the company’s philanthropic efforts, while Ms. Fried, also a respected academic, led a network of political donors that her son helped fund.

According to the lawsuit, Mr. Bankman helped secure loans of hundreds of millions of dollars to high-profile employees and was listed on an internal document as a member of the company’s management team. In messages cited in the suit, Mr. Bankman complained about only receiving a salary of $200,000 a year, as opposed to the $1 million he expected to receive.

“Well, Sam, I don’t know what to say here,” he wrote in an email cited in the suit. “This is the first time I heard of the salary of 200,000 a year!”

Shortly afterward, Mr. Bankman-Fried sent her the $10 million gift, according to the lawsuit. Mr. Bankman also flew on private jets and spent $1,200 a night on hotel stays at FTX, according to the lawsuit, and he made an appearance alongside comedian Larry David in an FTX commercial during the Super Bowl 2022.

Mr. Bankman pushed for his role in the ad, according to the lawsuit, quoting him as saying that he was not obsessed with celebrities and that he didn’t “really care about meeting, say, Tom Brady.” But Larry David….

The lawsuit also claims that Mr. Bankman helped cover up allegations by a former FTX lawyer that some of Mr. Bankman-Fried’s companies had engaged in money laundering and price manipulation. Rather than looking into those allegations, the lawsuit says, Mr. Bankman suggested investigating the lawyer.

Ms. Fried never worked for FTX, but she was also intimately involved in her son’s work, according to the lawsuit. According to the complaint, she advised him on political donations, encouraging him and other executives to make “straw donations” concealing that the money came from FTX, a strategy designed to “avoid (if not violate) federal campaign finance disclosure rules. »

In an August 2022 email to Mr. Bankman-Fried, cited in the suit, she spoke of another donor who “would only give in an undisclosed form” and said she would “strongly urge you to do the same – or to replace someone.” the name of another.

Federal prosecutors accused Mr. Bankman-Fried of orchestrating a straw-donation scheme, and two of his top advisers, Nishad Singh and Ryan Salame, pleaded guilty to participating in it.

Mr. Bankman and Ms. Fried frequently visited the Bahamas, staying in a 30,000-square-foot property with ocean views. Since FTX’s collapse, the couple has said they “never believed” they owned the house. But according to the lawsuit, an FTX subsidiary paid for the house; Mr. Bankman sent an email to a senior FTX executive in May 2022, inviting him and others to “celebrate the home you helped us purchase/move into,” the complaint states. He and Ms. Fried were granted permanent residency in the Bahamas last October, the suit says, with FTX covering $30,000 in fees associated with the applications.

Mr. Bankman also asked FTX employees whether the company that provided landscaping services for the home could bill FTX directly, according to the lawsuit. And a month after the purchase closed, according to the complaint, Ms. Fried directed FTX employees to place online orders for a sofa, at least eight vases and a hand-knotted Persian rug costing more than $2,500. dollars.