FTX Sues Parents Of Former CEO Sam Bankman-Fried

The parents of former crypto multi-billionaire Sam Bankman-Fried have been dragged further in the legal mire surrounding their son.

In a court filing on Monday, it was revealed that lawyers representing the bankruptcy estate of the failed crypto exchange FTX have sued the parents of Sam Bankman-Fried, seeking to claw back luxury property and “millions of dollars in fraudulently transferred and misappropriated funds”, CNBC reported.

The parents of Sam Bankman-Fried are already deeply involved in his legal drama, ever since Bankman-Fried pleaded not guilty to federal fraud and conspiracy charges over his role in the collapse of the FTX crypto exchange, when a multi-billion dollar hole was found in its balance sheet.

Bail revoked

Allan Joseph Bankman and his wife, Barbara Fried, are both legal scholars who taught at Stanford Law School.

Allan Joseph Bankman specialises in taxes, while his wife Barbara Fried is an expert on ethics.

They had pledged their Palo Alto, California home as collateral as part of the $250 million bail package of their son.

As part of his bail conditions, Sam Bankman-Fried, who once had a net worth of $26 billion, was restricted to their California home and forced to wear an ankle monitor.

That bail lasted until last month, when Sam Bankman-Fried was sent to jail, after a US judge sided with a request from federal prosecutors to revoke the FTX founder’s $250m bail.

US prosecutors had accused Bankman-Fried of witness tampering and US District Judge Lewis Kaplan agreed that a New York Times article titled “Inside the Private Writings of Caroline Ellison, Star Witness in the FTX Case”, meant detention and not bail was in order.

Lawyers for Bankman-Fried have expressed concern about his access to suitable food and medicine in the Brooklyn jail.

Parents sued

Now CNBC reported that Allan Joseph Bankman and Barbara Fried have themselves been accused of exploiting “their access and influence within the FTX enterprise to enrich themselves, directly and indirectly, by millions of dollars.”

The lawsuit, which was filed in a US District Court in Delaware, goes on to claim that “despite knowing or blatantly ignoring that the FTX Group was insolvent or on the brink of insolvency,” Bankman and Fried allegedly discussed with their son the transfer of a $10 million cash gift and a $16.4 million luxury property in The Bahamas.

The suit goes on to allege that as early as 2019, Sam’s father directly participated in efforts to cover up a whistleblower complaint which threatened to “expose the FTX Group as a house of cards.”

The filing also details emails written by Bankman, in which he allegedly complained to the FTX US Head of Administration that his annual salary was $200,000, when he was “supposed to be getting $1M/yr.”

That grievance was ultimately elevated to his son in an email, according to the lawsuit: “Gee, Sam I don’t know what to say here. This is the first [I] have heard of the 200K a year salary! Putting Barbara on this,” CNBC reported the filing as alleging.

The filing characterises the correspondence as Bankman lobbying his son to “massively increase his own salary.”

Within two weeks, the suit claims that Sam Bankman-Fried had collectively gifted his parents $10 million in funds coming from Alameda, and within three months, the couple was deeded the $16.4 million property in The Bahamas.

Other allegations

According to the partially-redacted filing, Bankman-Fried’s parents also “pushed for tens of millions of dollars in political and charitable contributions, including to Stanford University, which were seemingly designed to boost Bankman’s and Fried’s professional and social status.”

CNBC also reported that Fried is also accused of encouraging her son and others within the company to avoid, if not violate, federal campaign finance disclosure rules by “engaging in straw donations or otherwise concealing the FTX Group as the source of the contributions.”

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

Parents response

FTX’s new leadership team has spent months trying to piece back together billions of dollars in missing assets belonging to the failed digital asset exchange.

In July FTX filed a lawsuit against Sam Bankman-Fried, seeking to recoup more than $1 billion, and alleging the funds were used to cover his legal defence.

FTX’s lawsuit against his parents meanwhile is seeking asks for a mix of compensatory relief, including punitive damages resulting from Bankman and Fried’s “conscious, willful, wanton, and malicious conduct,” as well as the return of any property or payments made to the pair from FTX.

CNBC reported that if a judge rules in favour of FTX, it is unclear how the clawbacks might affect Bankman and Fried’s ability to pay for their son’s legal fees as he heads to trial on 2 October.

Meanwhile legal counsel for Bankman and Fried said in a written statement to CNBC that FTX’s Tuesday’s filing “is a dangerous attempt to intimidate Joe and Barbara and undermine the jury process just days before their child’s trial begins,” adding that “these claims are completely false.”

“Mr. Ray and his massive team of lawyers, who are collectively running up countless millions of dollars in fees while returning relatively little to FTX clients, know better,” continues the statement from Bankman and Fried’s attorneys.