John Jay Ray III, the corporate turnaround expert overseeing the bankruptcy of FTX crypto exchange, has accused the company’s founder, Sam Bankman-Fried, of “old-fashioned embezzlement.” However, now he has targeted Mr. Bankman-Fried’s parents.
FTX has filed a lawsuit in federal court in Delaware against Joe Bankman and Barbara Fried, longtime Stanford law professors. The lawsuit alleges that they used their influence within FTX to enrich themselves and seeks to recover millions of dollars received from their son.
In the lawsuit, FTX claims that Mr. Bankman and Ms. Fried received a $10 million cash gift from Mr. Bankman-Fried and a $16.4 million home in the Bahamas, which was purchased by the exchange. The lawsuit also alleges that Mr. Bankman helped cover up complaints by a former lawyer for his son’s business and that Ms. Fried coached Mr. Bankman-Fried and another FTX executive to avoid disclosure requirements for political donations.
The lawsuit states that the couple either knew or ignored red flags indicating their son’s involvement in a fraudulent scheme. So far, there has been no response from Mr. Bankman or Ms. Fried’s representative regarding the lawsuit.
FTX filed for bankruptcy protection in November due to an $8 billion shortfall in its accounts. In December, Mr. Bankman-Fried was charged with orchestrating a scheme to use customer deposits for venture capital investments, political donations, and luxury real estate purchases. He has pleaded not guilty and is awaiting trial in October.
The collapse of FTX raised questions about Mr. Bankman and Ms. Fried. Mr. Bankman, a tax professor, was an FTX employee involved in the company’s philanthropic efforts. Ms. Fried, a respected scholar, ran a political-donor network financed by her son.
The lawsuit reveals that Mr. Bankman arranged loans for top employees and complained about his salary. He then received a $10 million gift from his son, according to the lawsuit. The lawsuit also alleges that Mr. Bankman used FTX funds for personal expenses, such as private jet flights and luxury hotel stays. Additionally, he appeared in an FTX commercial during the 2022 Super Bowl alongside Larry David.
The lawsuit further claims that Mr. Bankman helped cover up allegations of money laundering and price manipulation by a former FTX lawyer and that Ms. Fried advised her son on political donations, including making “straw donations” to circumvent campaign finance disclosure rules.
According to the lawsuit, Mr. Bankman and Ms. Fried stayed at a 30,000-square-foot property in the Bahamas, which was paid for by an FTX subsidiary. The couple has denied ownership of the house, but an email from Mr. Bankman suggests otherwise. They were also granted permanent residency in the Bahamas with FTX covering the associated fees.
The lawsuit also mentions that Mr. Bankman requested FTX to directly pay for landscaping services for the house, and Ms. Fried instructed FTX employees to place online orders for furniture, vases, and a rug after the purchase was closed.