Judge to Sentence Former FTX Executive Ryan Salame in Late May

April 10, 2024 Bitcoin.com

After Sam Bankman-Fried’s Sentencing, Spotlight Turns to Former FTX Associates

April 2, 2024 Bitcoin.com

Alameda Tapped Billions of Dollars in FTX User Funds As Early as 2019, Says Co-Founder Gary Wang: Report

October 8, 2023 The Daily Hodl

FTX’s former law firm hit with lawsuit alleging it set up shadowy entities

August 9, 2023 Coin Telegraph

Caroline Ellison

The suit claims “shadowy entities” set up by Fenwick & West were allegedly used by FTX and former top executives to misappropriate customer funds.

FTX’s former primary counsel Fenwick & West LLP has been hit with a class-action suit claiming it aided the crypto exchange’s alleged multi-billion dollar fraud.

An Aug. 7 filing by a group of FTX customers in a California District Court alleged the law firm set up several “shadowy entities” allowing FTX co-founder Sam Bankman-Fried and other executives to adopt “creative but illegal strategies” to perpetuate fraud.

The suit claims Fenwick & West provided services to FTX that “went well beyond those a law firm should and usually does provide,” such as structuring acquisitions by FTX US in ways that circumvented regulatory scrutiny and supplying staff to execute strategies the law firm proposed.

The “shadowy entities” were named as North Dimension and North Wireless Dimension, which the suit alleged siphoned misappropriated FTX customer funds.

*Highlighted excerpt from the class complaint against Fenwick & West. Source: CourtListener*

The plaintiffs said Fenwick & West aided and abetted FTX’s alleged fraud by choosing not to intervene in a series of misrepresentations supposedly made by FTX to its customers.

There was an implied agreement between FTX US, other FTX affiliates and Fenwick & West to deceive customers, the class suit said — something that appealed to the law firm because it “stood to gain financially” from FTX’s alleged misconduct, it added.

Bankman-Fried, former Alameda Research CEO Caroline Ellison, former FTX co-founder Gary Wang and former FTX engineering lead Nishad Singh were the four so-called FTX insiders listed by the plaintiffs.

Fenwick & West was named in a similar class-action lawsuit in February that also alleged it assisted Bankman-Fried and FTX in setting up its business.

The February lawsuit — which also targeted FTX investor and venture capital firm Sequoia Capital — claimed the services provided by Fenwick & West were central to Bankman-Fried’s fraud.

The law firm recently hired peer firm Gibson Dunn to assist with legal matters related to its alleged role at FTX, according to a June 21 Reuters report.

FTX collapsed and filed for bankruptcy in November 2022 when it was unable to process a large volume of customerwithdrawals.

Bankman Fried remains under house arrest and faces 12 charges including wire fraud, conspiracy and money laundering. He is set to have two criminal trials in October and March.

Prosecutors said on Aug. 8 that they plan to re-add a charge relating to illegal campaign finance, which was previously dropped due to it potentially violating a treaty obligation with the Bahamas.

Cointelegraph contacted Fenwick & West for comment but did not immediately receive a response.

Magazine: Deposit risk: What do crypto exchanges really do with your money?

FTX leadership sues Sam Bankman-Fried over $220M deal made prior to bankruptcy

May 18, 2023 Coin Telegraph

FTX leadership sues Sam Bankman-Fried over 0M deal made prior to bankruptcy

Alameda

When FTX tried to sell the platform after filing for bankruptcy, the top bid was for just $1 million, representing a 99.5% decline in value.

FTX lawyers are suing former CEO Sam Bankman-Fried, co-founder Zixiao Wang, and former senior executive Nishad Singh over the $220 million acquisition of stock-clearing platform Embed, alleging lack of due diligence.

According to a May 17 filing, FTX had paid $220 million to acquire Embed through its United States subsidiary after having allegedly “performed almost no due diligence” on the platform.

After FTX filed for bankruptcy, the judge in charge of the proceedings approved the sales of Embed and other assets of FTX, but the top bidder for the platform offered just $1 million, with FTX’s lawyers stating:

“The bidders had figured out what the FTX Group and FTX Insiders did not bother to assess prior to the Embed acquisition, namely, that Embed’s vaunted software platform was essentially worthless.”

While 12 entities had submitted non-binding indications of interest — the largest of which was $78 million — all but one declined to submit a final bid after conducting more comprehensive due diligence: Embed’s founder and former CEO, Michael Giles.

According to FTX’s lawyers, Giles had “personally received approximately $157 million in connection with the acquisition,” but his final bid to regain ownership of Embed was a paltry $1 million, subject to reductions at closing.

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

The lawyers further alleged that misleading records were created to obscure Alameda Research’s role in funding the Embed acquisition, claiming funds had been transferred between FTX entities, not from Bankman-Fried, Singh and Wang as claimed.

*A screenshot from the filing shows a visualization of the flow of funds according to FTX lawyers. Source: Kroll*

FTX wants the transactions to be labeled as “avoidable fraudulent transfers and obligations, and/or preferences,” in addition to having claims made by the defendants disallowed until FTX can recoup the funds lost through avoidable transfers.

FTX filed for bankruptcy on November 11, 2022, and since then, its new leadership has been focused on clawing back funds to repay customers and creditors. It has also been considering a possible relaunch of the exchange.

Magazine: Ordinals turned Bitcoin into a worse version of Ethereum — Can we fix it?

FTX financial controls were a ‘hodgepodge’ of apps, says court filings

April 10, 2023 Coin Telegraph

accountant

A court filing alleged apps such as Excel spreadsheets and Slack messages were used to manage the assets and liabilities of FTX and its entities.

FTX was run by three inexperienced people “not long out of college,” who relied on “a hodgepodge” of online shared documents and communications across a series of different apps to manage the multi-billion dollar empire according to FTX CEO John Ray III.

In an April 9 court filing in a Delaware Bankruptcy Court, John J Ray III gave his first detailed account of the control failures at FTX.

Ray stated that his restructuring team had “identified extensive deficiencies in the FTX Group’s controls” from a lack of appropriate financial and accounting controls to an inadequate group management structure and record-keeping process.

FTX apparently “relied on a hodgepodge of Google documents, Slack communications, shared drives and excel spreadsheets” to manage its assets and liabilities.

FTX used the accounting software QuickBooks, which Ray said was designed for “small and mid-sized businesses” and not for a firm that operates across “multiple continents and platforms” such as FTX.

FTX’s bookkeeping was reported to have been neglected as around 80,000 transactions were left as unprocessed accounting entries in “catch-all QuickBooks accounts titled ‘Ask My Accountant.’”

Ray emphasized that co-founders Sam Bankman-Fried and Gary Wang, along with former engineering director Nishad Singh had the “final voice in all significant decisions,” despite very limited experience.

“These three individuals, not long out of college and with no experience in risk management or running a business, controlled nearly every significant aspect of the FTX Group.”

Wang and Singh’s significant control over FTX was noted by an unnamed FTX executive who stated that “if Nishad [Singh] got hit by a bus, the whole company would be done. Same issue with Gary [Wang].”

It was noted that the company couldn’t provide a complete list of its employees at the time of bankruptcy filing in Nov. 2022.

FTX failed to file its financials on time at the end of financial reporting periods and did not carry out back-end checks to identify and correct material errors.

Brett Harrison, the president of FTX.US, raised concerns with Bankman-Fried and Singh regarding “the lack of appropriate delegation of authority, formal management structure, and key hires at FTX.US.”

In response, Harrison’s bonus was significantly reduced and he was instructed to apologize to Bankman-Fried by the firm's internal counsel, which he refused to do. It was reported that Harrison resigned following the disagreement.

Not sure how this is “new,” as I’ve written and spoken publicly about the circumstances of my resignation from FTX US a number of times since January. https://t.co/b3apaHoOzT
— Brett Harrison (@BrettHarrison88) April 9, 2023

Ray stated in a Feb. 6 court filing that when he took control of FTX in Nov. 2022 there was “not a single list of anything” related to bank accounts, income, insurance or personnel, causing a “massive scramble for information.”

He pushed back against the motion to assign an independent examiner to the bankruptcy case out of fears that “inadvertent errors” could result in “hundreds of millions of dollars of value being destroyed.”

Magazine: US and China try to crush Binance, SBF’s $40M bribe claim: Asia Express

Nishad Singh