Introduction

Debtors of the bankrupt cryptocurrency exchange FTX have launched legal action against the parents of FTX founder Sam “SBF” Bankman-Fried, alleging that they misappropriated millions of dollars through their involvement in the exchange’s business.

Lawsuit Filed by FTX Debtors

The counsel for FTX debtors and debtors-in-possession, represented by the law firm Sullivan & Cromwell, filed a lawsuit against SBF’s parents, Joseph Bankman and Barbara Fried, on Sept. 18.

Allegations Against Bankman and Fried

The plaintiffs argued that Bankman and Fried exploited their access and influence within the FTX empire to enrich themselves at the expense of the debtors in the FTX bankruptcy estate. The debtors alleged that SBF’s parents were “very much involved” in the FTX business from inception to collapse, contrary to what SBF has claimed.

Involvement of Bankman and Fried

According to the plaintiffs, SBF’s father, a Stanford Law School professor, had broad authority to make decisions for FTX Group as its “de facto officer.” Bankman also held executive positions on FTX Group’s management team, the debtors argued. SBF’s mother, also a Stanford Law School professor, was actively involved in FTX’s political donations, the plaintiffs wrote.

Accusations of Misconduct

According to the complaint, Bankman and Fried extracted significant unearned rewards from their involvement in FTX Group, including a $10-million cash gift and a $16.4-million luxury property in the Bahamas. Bankman also siphoned off FTX Group’s money to cover costs, including privately chartered jets and $1,200-per-night hotel stays, the plaintiffs alleged.

Call for Accountability

By draining FTX Group’s funds to their benefit, Bankman and Fried either knew or ignored red flags revealing that their son was orchestrating a fraudulent scheme to promote their personal and charitable interests at the debtors’ cost, the plaintiffs said. The debtors called on the court to hold Bankman and Fried accountable for their misconduct and recover assets for the debtors’ creditors.

Response from Bankman and Fried’s Counsels

Bankman and Fried’s counsels Sean Hecker and Michael Tremonte subsequently described the lawsuit as an attempt to “undermine the jury process just days before their child’s trial begins” in a joint statement to Cointelegraph.

Background on FTX

Once a major cryptocurrency exchange, FTX stopped operating and filed for Chapter 11 bankruptcy in mid-November 2022. FTX founder and former CEO SBF was subsequently arrested and charged with 13 counts, including fraud, money laundering, and bribing officials. SBF’s first trial is scheduled to start on Oct. 3.