© Reuters. FILE PHOTO: FTX logo is seen in this illustration taken March 31, 2023. REUTERS/Dado Ruvic/Illustration/
By Dietrich Knauth
NEW YORK (Reuters) – Bankrupt crypto exchange FTX is seeking to claw back more than $240 million it paid for stock trading platform Embed, saying former FTX insiders did no investigation before buying the essentially worthless bug-ridden software platform.
FTX filed three lawsuits late Wednesday in U.S. Bankruptcy Court in Delaware targeting former FTX insiders including indicted founder Sam Bankman-Fried, Embed executives including founder Michael Giles, and Embed shareholders. FTX alleged that Bankman-Fried and other FTX insiders misappropriated company funds to acquire stakes in Embed as part of the transaction.
FTX closed on the Embed acquisition just six weeks before the crypto exchange collapsed into bankruptcy in November. FTX lost billions in customer money while propping up its own risky investments, actions its current CEO John Ray called “old-fashioned embezzlement.”
FTX’s new management has been seeking to recover assets to repay customers since the bankruptcy filing. U.S. law allows debtors to claw back payments made under certain circumstances shortly before a bankruptcy filing and use those funds to repay other creditors.
FTX recently tried to sell Embed, but the highest bidder was Giles, who offered only $1 million.
FTX’s auction “leaves no doubt” that the $220 million it spent to acquire Embed was “wildly inflated relative to the company’s fair value, which Giles well knew,” FTX wrote in its lawsuit.
FTX intended to use Embed’s software to add stock trading to its crypto exchange platform, but Embed’s software was “essentially worthless,” the lawsuits said. FTX performed almost no investigation of Embed and “prioritized speed over all else,” they added.
Embed’s own insiders were surprised that FTX paid so much for the company after little more than a meeting with Giles, describing FTX’s approach to due diligence with a cowboy emoji in internal messages.
As part of the purchase, FTX also paid Embed employees $70 million in retention bonuses. Most of that went to Giles, who later worried how to explain his $55 million bonus to other Embed shareholders, according to the lawsuits.
FTX is seeking to recover $236.8 million from Giles and Embed insiders, and $6.9 million from Embed minority shareholders.
Read the full article here