FTX suspends $500M sale of stake in AI firm Anthropic: Report

June 28, 2023 Coin Telegraph

FTX suspends 0M sale of stake in AI firm Anthropic: Report

AI Chatbot

Multiple buyers were reportedly eyeing up FTX’s stake in the AI firm that was being sold off to recover funds for creditors.

The sale of FTX's $500 million stake in artificial intelligence startup Anthropic has reportedly been put on hold, adding a potential delay to the bankrupt crypto exchange's efforts to fill a $2 billion hole remaining in its balance sheet.

Citing people familiar with the matter, Bloomberg reported on June 27 that FTX’s advisory investment bank, Parella Weinberg Partners, paused the sale of FTX’s Anthropic stake this month, despite multiple parties being interested in buying FTX’s stake.

A sale of the stake would be a significant monetary recovery for FTX. A June 26 report by FTX restructuring chief John Ray alleged $8.7 billion in user funds were misappropriated, around $7 billion of which has been recovered.

FTX pauses Anthropic sale. Wise move.

Selling losers first is crucial.

Anthropic tokenisation might also synergise well with FTX 2.0, as an exclusive listing. pic.twitter.com/WJd900JBYw
— FTX 2.0 Coalition (@AFTXcreditor) June 27, 2023

Prior to the pause, multiple buyers were reportedly interested in FTX’s slice of Anthropic. In early June, Semafor reported FTX was pitching the AI firm to potential investors.

FTX held $500 million worth of Anthropic stock at the time of its bankruptcy in November, which is now expected to be worth much more with the AI boom in full swing.

On May 23, Anthropic hit a reported valuation of $4.6 billion and raised $450 million in its latest funding round. Anthropic offers an AI chatbot dubbed “Claude” that it claims can be deployed for a number of uses, including sales, customer service and web searches.

At the time of its bankruptcy, FTX’s stake in the AI firm was one of its largest holdings behind its reported $1.15 billion investment in crypto miner Genesis Digital Assets.

The report on the pause on the sale comes just days after Ray’s report on the alleged misuse of FTX customer funds claimed that FTX had $2 billion to go before potentially recovering all assets.

FTX Debtors released their second investigative report, which details the commingling and misuse of customer deposits at https://t.co/Svd0COiEpS by FTX Group’s previous management team: https://t.co/jtz3vI0jBY
— FTX (@FTX_Official) June 26, 2023

The report included details of thousands of dollars in “grants” allegedly made to niche non-crypto-related projects.

Also detailed in the report were alleged investments in venture capital firms, a $243 million Bahamian real estate portfolio along with donations to non-profits and a political action committee run by Gabe Bankman-Fried — the younger brother of FTX co-founder Sam Bankman-Fried.

Cointelegraph contacted Parella Weinberg Partners and Anthropic for comment but did not receive an immediate response.

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FTX alleges former exec used ‘hush money’ to silence whistleblowers

June 28, 2023 Coin Telegraph

Coin Telegraph

The lawsuit claims the former compliance officer paid whistleblowers to stop them from exposing the “true fraudulent nature” of the exchange.

FTX has filed a lawsuit against a former regulatory and compliance executive at the exchange, alleging he made a series of payments attempting to prevent staff from blowing the whistle about the exchange’s issues.

On June 27, FTX filed a lawsuit against Daniel Friedberg who held multiple roles including chief regulatory officer at FTX, chief compliance officer of FTX US and general counsel at Alameda Research.

FTX claims Friedberg was a "fixer" for the exchange's co-founder Sam Bankman-Fried — whose father urged for Friedberg to be given a major role, as per the complaint:

“Joe Bankman, Bankman-Fried’s father, urged Bankman-Fried and others to give Friedberg a central role and to keep Friedberg ‘in the loop…so we have one person on top of everything.’”

Friedberg allegedly made "hush money" payments to two potential whistleblowers to stop them from leaking information about "regulatory issues" and the alleged close ties between FTX and Alameda.

In one alleged incident, Friedberg retained the attorney of a whistleblower after he paid them “thereby buying or otherwise ensuring their silence,” the suit reads.

In the 40-page filing, FTX unleashed 11 civil charges that, among other claims, alleged Friedberg breached his legal duties and approved a series of fraudulent transfers and "loans" to other former FTX execs.

According to the suit, Friedberg’s 22-month stint at the exchange saw him given a $300,000 salary, a signing bonus of $1.4 million, a separate $3 million cash bonus, an 8% equity in FTX US and crypto “worth tens of millions” — all of which FTX is seeking to claw back.

Some parts of the complaint, especially those pertaining to the amounts the whistleblowers were paid, are redacted.

*An example of a redacted section of the suit regarding one of the whistleblowers. Source: Kroll*

In one alleged March 2022 incident, Friedberg gave an “extraordinary settlement” to a female FTX US employee named “Whistleblower-1” who worked “for less than two months” at the United States-based exchange on a $200,000 salary.

FTX also alleged he initiated a $12 million deal to retain Whistleblower-1’s attorney after the settlement.

The settlement was in response to a demand letter from Whistleblower-1 claiming “Alameda [was] nothing more than an extension of FTX, used to bolster investor confidence in FTX projects, and in turn drive up the prices of projects FTX had developed or invested in itself,” according to the suit.

*FTX redacted the amount paid to Whistleblower-1. Source: Kroll*

The former employee also claimed “details regarding company fundraising and various projects were disclosed openly” on Slack which they claimed allowed “all employees present to make trades on the information prior to public announcements.”

Friedberg allegedly contacted the law firm for Whistleblower-1 after the settlement and signed an agreement that saw the firm retained for “more than $200,000 per month for five years,” even though there was “no genuine need” for the services, the suit claimed.

In another alleged instance, Friedberg reportedly fired an attorney working for Alameda dubbed “Whistleblower-2” after they “became concerned about governance and regulatory issues” within the business.

The person worked at Alameda for less than three months, FTX claimed, but they still received a severance package — which was redacted in the filing.

A June 26 report by FTX restructuring chief John Ray alleged an unnamed senior attorney “facilitated and covered up” the comingling of customer funds.

The same day, The Wall Street Journal reported the unnamed attorney was Daniel Friedberg, citing people familiar with the matter.

Friedberg was also named as a person who gave information to investigators with the U.S. Attorney’s office.

Additionally, a class action lawsuit against celebrities who allegedly promoted FTX also said Friedberg provided evidence that potentially rebuts key defenses made by some of the defendants.

Friedberg could not be immediately contacted for comment.

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Update (June 28, 4:50 am UTC): This article has been updated with further information from the filing.

FTX pursues $244M clawback from ‘wildly inflated’ Embed acquisition deal

May 19, 2023 Coin Telegraph

<div>FTX pursues 4M clawback from 'wildly inflated' Embed acquisition deal</div>

Coin Telegraph

FTX lawyers want to claw back $243.7 million from Embed insiders and executives, claiming its former leadership paid a "wildly inflated" price for the company.

FTX’s leadership is looking to claw back more than $240 million from insiders and executives that benefited from FTX's "wildly inflated" acquisition of stock-clearing platform Embed in September.

Cointelegraph reported yesterday that a lawsuit was filed against former FTX CEO Sam Bankman-Fried and other top FTX insiders on May 17 concerning the Embed acquisition, which they allege was conducted without enough due diligence.

However, on the same day, a separate lawsuit was filed seeking to claw back funds from Embed’s CEO Michael Giles and its shareholders, accusing FTX of paying a “wildly inflated” price of $220 million for the stock-trading platform.

Lawsuit filed against Embed insider and CEO Michael Giles. Source: Kroll.

According to the filing, Embed’s own Chief Technology Officer Laurence Beal was stunned that FTX paid so much for the company after one short meeting with Giles. In correspondence with another senior employee at Embed, Beal described FTX's due diligence process with a cowboy emoji.

“I get a sense that they are [cowboy emoji] over there.”

As part of the purchase, FTX also paid Embed employees a total of $70 million in retention bonuses. The majority of that sum — $55 million — was paid to Giles, who later became concerned about how he would justify this amount to other employees.

Between the day that Giles signed the acquisition agreement on June 10, 2022, and the closing of the acquisition on September 30, 2022, he was being paid a staggering $490,000 each day, assuming that he worked seven days every week. He was also awarded an additional $103 million when the deal closed, due to his standing as Embed’s largest shareholder.

Back at you @Brett_FTX @SBF_FTX @ramnikarora and team. Excited for @Embedded to join @FTX_Official https://t.co/LttYxEFR7L
— Michael Giles (@Harland) June 21, 2022

This amount stands in stark contrast to Giles’ normal salary of $12,500 per month as Embed’s CEO.

Despite a number of Embed employees being awarded retention payment agreements, Giles was the only one who was paid his full retention bonus on the closing date. The other employees were obligated to remain at Embed for two years if they wished to receive their full bonuses.

As a result of these disproportionate payouts to Embed insiders, FTX will now seek to claw back $236.8 million from Giles and Embed executives as well as an additional $6.9 million from Embed’s smaller shareholders.

Additionally, lawyers accused FTX insiders of taking “advantage of the FTX Group’s lack of controls and recordkeeping to perpetrate a massive fraud” by using misallocated funds to facilitate the purchase of Embed, while being fully aware that the company was insolvent when finalizing the deal.

FTX filed for Chapter 11 bankruptcy protection on Nov. 11, 2022. The firms’ new leadership — headed by bankruptcy attorney John Ray III — has been focused on clawing back funds to repay customers and creditors. More recently, FTX lawyers considered a possible reboot of the exchange.

Cointelegraph contacted Embed CEO Michael Giles for comment did not receive a response by time of publication.

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Lawyers’ picnic: FTX counsel and advisers rake in $34M in January

March 8, 2023 Coin Telegraph

Lawyers’ picnic: FTX counsel and advisers rake in M in January

accounting

Millions have been invoiced from a host of law firms, investment bankers, consultants and financial advisers in FTX’s bankruptcy case.

The law firms, investment banks and consulting companies working with FTX on its bankruptcy case billed the crypto exchange a combined $34.18 million in January, court documents reveal.

FTX’s chief restructuring officer and new CEO, John J. Ray III, also received a hefty pay package, charging $1,300 an hour to a total of $305,000 in February according to a March 6 filing.

*Fee breakdown of FTX CEO John J. Ray III over the month of February. Source:* *Kroll*

Separate court filings on March 6 show United States law firms Sullivan & Cromwell, Quinn Emmanuel Urquhart & Sullivan and Landis Rath & Cobb invoiced $16.9 million, $1.44 million and $684,000, respectively, for their services and expenses in January.

Lawyers and staff of Sullivan & Cromwell billed a total of 14,569 hours for their work, which equates to over 600 days. Some partners received up to $2,165 per hour, while the firm’s paralegals and legal analysts were being billed out at $425 to $595 per hour.

The highest-priced billables were discovery ($3.5 million), asset disposition ($2.2 million) and general investigation work ($2 million).

*Sullivan & Cromwell’s fee statement as counsel to FTX Trading for the month of January. Source:* *Kroll*

It submitted another hefty $7.5 million bill to FTX for the first 19 days of February.

Ray played a crucial role in keeping Sullivan & Cromwell on board as legal counsel, having filed a court motion on Jan. 17 arguing that the white-shoe law firm had been integral in taking control over the “dumpster fire” that was handed to him.

His filing came in response to an objection to the retention of the law firm on Jan. 14 by U.S. Trustee Andrew Vara, who claimed that Sullivan & Cromwell had failed to sufficiently disclose its connections and prior work for FTX.

FTX special counsel Landis Rath & Cobb spent much of its working hours attending court hearings and litigation procedures. For its efforts, the firm billed the FTX administrators $684,000, including expenses.

Between the three law firms, over 180 lawyers and over 50 non-lawyer staff worked on the case, most of who came from Sullivan & Cromwell.

Forensics consulting firm AlixPartners billed $2.1 million for January. Almost half of the firm’s hours were spent on forensic analysis of decentralized finance products and tokens in FTX’s possession.

Consulting firm Alvarez & Marsal invoiced for $12.5 million for over 17,100 hours it committed to avoidance actions, financial analysis and accounting procedures.

*A breakdown of Alvarez & Marsal’s monthly fee statement by project, hours and fees for the month of January: Source:* *Kroll*

Investment bank Perella Weinberg Partners billed a monthly service fee of $450,000 plus more than $50,000 in expenses for planning a restructuring strategy and engaging in correspondence with third parties.

With FTX’s trial set for October, there are at least another six months of legal work to do for the law firms involved. Recent reports have estimated that the fees could reach in the hundreds of millions by the time the case is over, which could potentially rival the $440 million in fees that New York-based law firm Weil Gotshal made from the infamous Lehman Brothers bankruptcy in 2008.

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Sam Bankman-Fried lawyers reach agreement on use of messaging apps

February 7, 2023 Coin Telegraph

Alameda Research

The agreement comes as a result of federal prosecutors looking to ban SBF from contacting current or former FTX and Alameda employees while on house arrest.

Sam Bankman-Fried’s (SBF's) lawyers have reached an agreement with federal prosecutors concerning his use of messaging apps.

According to a Feb. 6 court document, both parties have agreed SBF “shall not use any encrypted or ephemeral call of messaging application, including but not limited to Signal.”

However, under the agreement, the former FTX CEO will be able to access FaceTime, Zoom, iMessage, SMS text, email and Facebook Messenger.

He will also be allowed to use the encrypted messaging service WhatsApp but only if “monitoring technology is installed on his cellphone that automatically logs and preserves all WhatsApp communications.”

The latest agreement comes as a result of a push in late January by federal prosecutors to ban SBF from contacting current or former employees of FTX or its sister trading firm Alameda Research.

In particular, prosecutors alleged on Jan. 15 that SBF had attempted to “influence” the testimony of FTX US general counsel Ryne Miller via the encrypted messaging app Signal.

why does SBF sound like he’s reaching out to an ex gf in his email to Ryne Miller pic.twitter.com/htmDeCagWj
— Tiffany Fong (@TiffanyFong_) February 6, 2023

On Jan. 30 it was also asserted that SBF had contacted FTX CEO John Ray to discuss ways to access company funds tied to Alameda wallets.

As it stands, a Feb. 1 ruling dictates that SBF is prevented from communicating with current or former employees of FTX or Alameda Research “except in the presence of counsel” in order to remain on bail until his trial.

SBF has been under house arrest in Palo Alto, California since late December and his criminal trial is scheduled to begin in October in a Manhattan United States District Court.

Meanwhile, bankruptcy proceedings for FTX are moving forward in the District of Delaware. In a court testimony on Feb. 6, the FTX CEO Ray recounted how difficult it was taking over the reins of the company in November.

Ray claimed that “not a single list of anything” relating to bank accounts, income, insurance or personnel were to be found at FTX, causing a chaotic scramble to hunt down information.

On the day he began guiding the firm through its Chapter 11 bankruptcy proceedings, FTX was hacked.

“Those hacks went on virtually all night long [...] It was really 48 hours of what I can only describe as pure hell,” he said.

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SBF to forfeit $700M worth of assets if found guilty of fraud

January 21, 2023 Coin Telegraph

SBF to forfeit 0M worth of assets if found guilty of fraud

Coin Telegraph

While most of SBF’s assets have been seized, Federal prosecutor Damian Williams outlined that the government is also looking to take control of three of his affiliated Binance accounts.

According to new court filings, disgraced FTX founder Sam Bankman-Fried (SBF) will be subject to the forfeiture of roughly $700 million worth of assets if he were to be found guilty of fraud.

In a court document filed on Jan 20, U.S. federal prosecutor Damian Williams outlined that the “government respectfully gives notice that the property subject to forfeiture” covers a long list of assets across fiat, shares and crypto.

The filings state that most of the assets were seized by the government between Jan.4 and Jan. 19, while it is also looking to lay claim to “all monies and assets” belonging to three separate Binance accounts.

Looking at the list of seized assets, the biggest allocations include 55,273,469 Robinhood (HOOD) shares worth roughly $525.5 million at the time of writing, $94.5 million held at Silvergate Bank, $49.9 million held at Farmington State Bank and $20.7 million at ED&F Man Capital Markets, Inc.

The government has submitted a forfeiture order in this instance as it alleges that these assets have been obtained unlawfully via the use of customer deposits.

While members of SBF’s inner circle such as Caroline Ellison and Gary Wang have fessed up and cooperated with prosecutors over their roles in FTX’s collapse, the man himself has pleaded not guilty to all eight criminal charges laid against him.

FTX roped in African investors with inflation hedge marketing

In other FTX-related news, a Jan. 18 report from the Wall Street Journal (WSJ) highlighted poorly aged marketing that the exchange released in Africa not too long before it went bankrupt in November.

The campaign in question touted USD-pegged stablecoins as safer investments than local currencies concerning inflation, while also promoting the potential to earn 8% yearly via staking rewards programs.

While those inflation sentiments may generally be true given that African currencies such as the Nigerian naira and Ghanaian cedi have plummeted against the USD, any African FTX customer persuaded by the marketing of course went on lost funds when the firm went bankrupt.

Former FTX education lead for Africa Pius Okedinachi told the WSJ that around that the exchange oversaw around $500 million worth of monthly trading volume in Africa, with most of the volume coming from Nigeria.

Notably, just eight days before FTX filed for bankruptcy, SBF also promoted FTX’s services to West Africa, announcing in a Nov. 3 tweet that the exchange had started accepting deposits in West African CFA francs.

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FTX roped in African investors with inflation hedge marketing

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