FTX, a bankrupt crypto exchange, is suing to recover $240 million from its ill-judged acquisition of stock platform Embed.
After facing bankruptcy, the crypto exchange platform FTX, now has its sights set on retrieving more than $240 million. The funds were used for the acquisition of the stock trading software platform Embed, a move FTX now claims to be unwise due to the lack of due diligence performed before the transaction. The platform was full of bugs, however, essentially rendering it worthless.
According to recently filed lawsuits in the U.S. Bankruptcy Court in Delaware, FTX alleges that a group of former insiders, including its founder Sam Bankman-Fried, committed misuse of company funds. The allegations suggest that these funds were used for acquiring stakes in Embed as part of the transaction. These transactions occurred a mere six weeks before FTX’s sudden collapse into bankruptcy, an event that resulted in the loss of billions in customer funds and jeopardized the firm’s risky investments.
Striving to Recover Assets and Repay Customers
FTX’s new management, led by CEO John Ray, is focused on a critical mission: asset recovery. This effort aims to help repay the numerous customers affected by the bankruptcy. US bankruptcy law enables debtors to regain payments made under specific circumstances shortly before a bankruptcy filing. They can then use the recovered funds to pay other creditors. This legal allowance is now the cornerstone of FTX’s plan to redress their financial woes.
However, the company’s efforts to sell Embed recently hit a roadblock. The highest bid came from none other than Embed’s founder, Michael Giles, offering a mere $1 million. FTX claims this low bid clearly underscores their earlier assertions about the stock trading platform’s inflated price relative to its fair value, something they believe Giles was aware of.
Lack of Due Diligence and Overpriced Bonuses
The lawsuits allege that FTX exhibited a high-speed, low caution approach when it came to the acquisition of Embed. FTX aimed to integrate Embed’s software into its crypto exchange platform, a move that turned out to be wrong due to the software’s lack of functionality. Embed insiders reportedly expressed surprise at FTX’s decision to pay such a high price after little more than a meeting with Giles.
One point of contention in the lawsuits revolves around a significant sum paid out as retention bonuses to Embed employees. Of the $70 million, a sizable chunk went to Giles. FTX aims to recover this sum, totalling $236.8 million, from Giles and other Embed insiders, while $6.9 million may come back from minority shareholders in Embed.