Just some hours ago, FTX, a failed yet major crypto exchange, initiated legal proceedings against Sam Bankman-Fried, its former chief executive officer. This lawsuit also includes Zixiao Wang, co-founder of FTX, and Nishad Singh, an executive of FTX. The lawsuit stems from their alleged missteps in the $220 million acquisition of Embed, a stock-clearing platform. FTX legal representatives argue that the defendants acted without proper due diligence in the acquisition process, leading to what we now know as one of the biggest collapses in crypto history.
The acquisition of Embed became controversial when the stock-clearing platform was put up for sale immediately after FTX’s bankruptcy filings. The highest bid for the platform stood shockingly low at $1 million. This accounted for only a fraction of the original purchase price. Lawyers contended in the filing that “Embed’s vaunted software platform was essentially worthless.” Today, we have an FTX lawsuit against Sam Bankman-Fried because of this.
During the sale proceedings, twelve potential buyers showed interest. Additionally, the highest bid amounted to $78 million. However, after evaluating the platform, all but one prospective buyer revoked their bids. This bidder was none other than Embed’s founder and former CEO, Michael Giles. He put forward a $1 million offer to reclaim ownership of the platform he sold some time ago for a price 220 times higher than the one he is reclaiming it for. This prompted FTX’s legal representatives to take action.
The main thing the lawyers are highlighting is the contrast between Giles’s personal gain of approximately $157 million from the FTX-Embed deal and his “modest” $1 million offer to reacquire the platform.
FTX Lawsuit Suggests Several Exploits Done By Management
The lawsuit further alleges that FTX’s management exploited the FTX Group’s lack of control. According to them, this led to further misuse of client funds to finance the Embed acquisition. It asserts that the senior management was conscious of the company’s insolvency at the time of finalizing the deal.
Accusations also point to fraudulent record-keeping practices to conceal Alameda’s financial involvement in the Embed transaction. All of these allegations could lead to FTX winning the lawsuit if proven true.
The FTX collapse marks a significant financial catastrophe in recent history and comes on the heels of collapses from other crypto companies and projects. This would include Terraform Labs, Celsius, and Voyager Digital. Moreover, the collapse of FTX highlights significant gaps and issues within the crypto industry.
For many retail investors, the chaos underscores the necessity of storing their crypto assets off exchanges, preferably in hardware wallets. This is suggested to everyone so that they can maintain better control and security over their cryptocurrencies, NFTs, and Bitcoin. However, with everything that is going on at Ledger at the moment, even that seems like a dangerous thing to do.
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