The legal battle previously fought by Sam Bankman-Fried, the disgraced co-founder and former CEO of the now-bankrupt crypto empire FTX, is now becoming a family affair as the business he once ran is suing his parents, Allan Joseph Bankman and Barbara Fried, to “recover millions of dollars in fraudulently transferred and misappropriated funds.”
The legal battle between FTX and Bankman-Fried intensifies, as John Ray III, the court-appointed CEO of the now-bankrupt crypto exchange platform, has set his sights on the crypto mogul’s parents. A Monday filing in the federal court in Delaware revealed this development.
Bankman-Fried’s parents are renowned Stanford scholars with distinguished careers, predating their son’s prominence in the cryptocurrency space.
The father, Bankman (as referred to in the court filing), is an expert in taxes and taught at the law school for over three decades. He is best known for his contributions to making the U.S. tax code more favorable to lower-income citizens.
The mother, Fried (as mentioned in the court filing), specializes in legal ethics and is a prominent figure within progressive political circles.
But, while Bankman-Fried’s (SBF) parents were brought into the spotlight when his crypto empire began to unravel in late October and filed for bankruptcy in November 2022, the prevailing perception was that their involvement in the crypto mogul’s businesses was very limited, primarily offering moral support to their son.
However, a Monday court filing by FTX accused both of exploiting “their access and influence within the FTX enterprise to enrich themselves.”
The lawsuit aims “to recover damages caused by fraudulent transfers, breaches of fiduciary duties, aiding and abetting breaches of fiduciary duty, unjust enrichment, knowing assistance or knowing receipt, and other wrongdoing, and to avoid and recover fraudulent transfers,” as well as punitive damages resulting from “conscious, willful, wanton, and malicious conduct.”
The filing also accused both Bankman and Fried of purposefully exploiting their access to the now-defunct crypto business for their personal gain, contending that it was at the expense of the debtors involved in the Chapter 11 cases.
“As Bankman-Fried’s parents, Bankman and Fried exploited their access and influence within the FTX enterprise to enrich themselves, directly and indirectly, by millions of dollars, and knowingly at the expense of the debtors in these Chapter 11 Cases (the ‘Debtors’ or the ‘FTX Group’)2 and their creditors,” the court document read.
“Bankman and Fried wielded their influence and status as Bankman-Fried’s parents to enrich themselves at the expense of the FTX Group. Bankman caused the Debtors to make and benefited from, the fraudulent transfer of Debtor property, breached his fiduciary duties, aided and abetted breaches of fiduciary duties, committed knowing assistance or knowing receipt, and was unjustly enriched,” the lawsuit alleged.
“Fried caused the FTX Group to make, and benefited from, the fraudulent transfer of Debtor property, aided and abetted breaches of fiduciary duties, and was unjustly enriched. Bankman and Fried deployed their decades of experience as sophisticated law professors and veneer of legitimacy not to help the FTX Group, but rather to plunder it in order to enrich themselves and their pet causes,” FTX debtors said in the court filing.
Among the allegations against Bankman-Fried’s parents highlighted in the lawsuit include “Bankman and Fried Together Received a Gift of $10 Million Originating from an Alameda Ltd. Account Containing Customer Funds After Bankman Advised on the Transaction,” “Bankman and Fried Received a $16.4 Million Luxury Residence in The Bahamas,” “Bankman Funded an Embed Account with Proceeds from the $10 Million Gift,” “Bankman Directed More Than $5.5 Million in FTX Group Donations to His Employer, Stanford University,” and “Fried Encouraged Certain FTX Insiders to Make Unlawful Political Contributions to Her Own Organization and Others,” to name a few.
In one of the many allegations listed in the lawsuit by FTX, it claimed that Bankman’s involvement in the crypto empire “increased” as the company swerved towards bankruptcy.
It revealed that Bankman took a leave of absence from Stanford to focus on his son’s crypto empire and lobbied for a salary increase at the time.
He also enriched himself through appearances in FTX commercials, lavish travel, and other means before the bankruptcy.
“Bankman’s involvement with—and benefits from and at the expense of—the FTX Group increased toward the end of 2021, so much so that in December 2021, Bankman took a leave of absence from Stanford Law School to focus on the FTX Group. In December 2021, Bankman instructed an FTX US employee: ‘I am no longer getting paid by Stanford, cuz I’m on leave. So you should have me on salary, starting Dec. 1,’” court filing revealed.
“This is a dangerous attempt to intimidate Joe and Barbara and undermine the jury process just days before their child’s trial begins,” lawyers for Bankman and Fried said in a joint statement, adding, “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.”
Bankman-Fried is set to attend his first trial on Oct. 3, but he has been in a constant battle with prosecutors since his bail was revoked, as his demands have been consistently denied by the court.