SBF, FTX Cryptocurrency Exchange and Hedge Fund Failure Class Action

This class action, unusually, names five individuals and no companies as defendants, most likely because the companies involved in the associated events appear to have failed. The complaint brings suit against Samuel Bankman-Fried (SBF) and four others involved in his FTX cryptocurrency exchange and Alameda Research hedge fund, from which billions of dollars appear to have vanished.

The class for this action is all persons in the US who had Bitcoin and other cryptocurrency, assets, or money stored with FTX on November 10, 2022.

SBF started his FTX cryptocurrency exchange in 2019, to allow users to buy and sell crypto and exchange it for normal currencies like the US dollar, and supposedly, the complaint alleges, to give users more protections and better experiences. SBF seems to have been adept at inspiring confidence in his enterprises; the complaint says FTX eventually came to be worth $32 billion and SBF became known as a philanthropist and large political donor.

Unfortunately, the complaint alleges that SBF “essentially used FTX—and his customers’ deposits, in particular—as his personal slush fund.”

One way FTX prospered, the complaint alleges, is that “SBF effectively paid investors, employees, and vendors shares of the company in his own crypto currency FTT, which he controlled and inflated the value of…”

FTX was publicly visible, the complaint alleges, running a $30 million Superbowl ad in 2021 and buying the naming rights to the Miami Heat arena and the University of California Berkeley’s football field.

SBF also presented himself as a bridge between crypto and Congress, the complaint alleges, testifying in front of the House Financial Services Committee in 2021 and appearing with Bill Clinton and Tony Blair at a 2022 crypto conference. The complaint quotes him as saying “FTX has designed and offered a platform with a market structure that is risk reducing[.]”

According to the complaint, SBF had started Alameda Research, a cryptocurrency hedge fund, even before this, in 2017. Unfortunately, the complaint alleges, he gave control of it to two inexperienced traders who are also defendants in this case, one of whom the complaint alleges took pride in being a gambler. The complaint alleges that his “risk-loving strategy ultimately led Alameda to make many bad investments that led to its downfall.”

SBF claimed that Alameda was completely separate from FTX, but the complaint claims this was not true: “SBR had even written a secret back door into FTX’s code that allowed him to siphon off customer deposits and move them to Alameda, where he could cover Alameda’s major trading losses. He also regularly used FTX’s assets to fund his own personal investments.” Even so, the complaint alleges, he continued to claim that FTX did not invest customer assets.

In November 2022, the complaint alleges, SBF’s enterprises collapsed. Consumers tried to withdraw their assets, the complaint alleges, “[b]ut the assets were gone.” FTX and Alameda filed for bankruptcy.

The complaint alleges fraud, conversion, and unjust enrichment.

Article Type: Lawsuit
Topic: Fraud
Tags: Conversion, Cryptocurrency, Fraud, Investment Losses, Unjust Enrichment