Lawyer John Ray sues senior executives of FTX, including SBF, for misappropriating FTX user funds to acquire companies recklessly.

FTX reorganizing lawyer John Ray has filed a lawsuit against FTX executives, including SBF, primarily stemming from an acquisition case. SBF and others allegedly misappropriated user funds to acquire compliance broker Embed and gain ownership. Following FTX's bankruptcy, John Ray is working to prevent SBF and others from potentially seeking claims due to these ownership stakes. The lawsuit also reveals how SBF allegedly falsified trading records to seek wealth.

FTX Acquires US Regulatory Stock Broker Embed

On March 15, 2022, FTX's US-registered company WRS began discussions to acquire Embed, aiming to allow FTX.US users to trade stocks in addition to cryptocurrencies.

On September 30, under the guidance of FTX founder SBF Sam Bankman-Fried, Alameda CEO Caroline Ellison, WRS founder Nishad Singh, and Alameda co-founder Gary Wang (referred to as FTX insiders), they misused FTX Group funds to enable WRS to pay $248 million to acquire shares in Embed. In some transactions, FTX insiders had WRS issue SAFE (Simple Agreement for Future Equity) to FTX insiders.

After FTX filed for bankruptcy restructuring, the SAFE held by FTX insiders converted to common stock of WRS, providing FTX insiders with an opportunity to claim during the restructuring process.

FTX Restructuring Lawyer John Ray Requests: No Claims Allowed for SBF

The FTX restructuring team demands that individuals like SBF should not be allowed to make or hold any claims during the restructuring process.

FTX Executives Misused Funds for Acquisition

The lawsuit alleges that FTX insiders deceived investors, creditors, and clients by engaging in self-trading transfers and acquiring Embed:

"All funds used to acquire Embed came from Alameda, which, at the direction of FTX insiders, illicitly diverted and transferred assets. These funds belonged to FTX.com and were used for projects outside FTX.com, deceiving FTX.com's creditors, including clients and investors."

SBF Urged Swift Acquisition at All Costs

The lawsuit states that FTX insiders believed the acquisition of Embed would help FTX.US expand into traditional securities markets, but they did not conduct proper due diligence on Embed. During negotiations, Embed founder Michael Giles personally received $157 million. WRS not only paid an amount far exceeding Embed's equivalent value but also granted Giles unreasonable bonuses to facilitate a quick acquisition.

Aside from SBF, other senior executives have already pleaded guilty to the incident.

SBF Falsified Trading Records to Increase Holdings

The lawsuit alleges that FTX insiders obtained funds through self-dealing and opaque means to acquire Embed.

In particular, FTX insiders created false and misleading records to make it appear that the funds used for WRS to acquire Embed came from the defendants personally. However, the funds used for the acquisition were transferred from Alameda bank accounts to WRS subsidiary bank accounts and eventually into WRS bank accounts. FTX insiders did this to demonstrate their ability to acquire WRS shares, as they expected these shares to appreciate.

On July 25, 2022, Alameda lent $200 million to SBF and other top executives without any repayment details in the loan commitment, only requesting repayment at the mid-term federal interest rate on the fifth anniversary of the loan. However, to date, FTX insiders have not repaid this money as it was merely a cover-up for their fraudulent activities.

On July 26, 2022, FTX insiders conducted a series of trades on FTX.US exchange to create an illusion that Alameda transferred a total of $200 million to FTX insiders, who then transferred the same amount to WRS.

In reality, these trades on the exchange did not involve any transfer of legal tender or cryptocurrency. Instead, they were meant to create an illusion that an amount corresponding to the $200 million in the commitment had been transferred from the defendants to WRS accounts.