FTX, the bankrupt cryptocurrency exchange founded by Sam Bankman-Fried (SBF), has filed a lawsuit against SBF’s parents, Joseph Bankman and Barbara Fried. The company alleges that the couple exploited their access and influence within FTX to enrich themselves at the expense of FTX and its creditors.
The lawsuit claims that SBF’s parents received millions of dollars in fraudulent transfers and misappropriated funds from FTX. It accuses them of using their connections to promote their own interests and pet causes, including making substantial donations to Stanford University.
Joseph Bankman, a Stanford law professor and tax law expert, played a significant role in FTX’s operations, despite not holding an official position within the company. The lawsuit alleges that he had the authority to make decisions for FTX Group and was part of the firm’s management team. Bankman is accused of receiving unearned rewards, including a $10 million cash gift from SBF and benefits like privately chartered jets and expensive hotel stays at FTX’s expense.
Barbara Fried, also a retired Stanford law professor, was actively involved in FTX’s political donations. The lawsuit claims that she encouraged SBF and other FTX executives to make donations that violated federal campaign finance disclosure rules, including straw donations.
FTX argues that Bankman and Fried either knew or ignored the red flags indicating that their son and other FTX insiders were orchestrating a fraudulent scheme to benefit their personal and charitable interests. The lawsuit seeks compensatory and punitive damages, as well as the return of transferred property and related expenses.
In response to the lawsuit, lawyers for Joseph Bankman and Barbara Fried called the allegations “completely false” and characterized the legal action as an attempt to intimidate them and undermine the upcoming trial of their child, SBF.
FTX filed for bankruptcy protection in November 2022 after a run on deposits exposed an $8 billion hole in the exchange’s accounts. SBF, the founder and former CEO, has been charged with orchestrating a scheme to use customer deposits to finance various investments, political donations, and luxury real estate purchases. He is set to go on trial on October 3.
The lawsuit against SBF’s parents adds another layer of complexity to the FTX bankruptcy proceedings, as the exchange’s new leadership team attempts to recover assets and repay creditors, including customers. The outcome of this legal battle could have significant implications for the ongoing bankruptcy case and the broader cryptocurrency industry.