• FTX and Alameda Research have sued their former executives for mismanaging funds and failing to conduct due diligence before acquiring Embed.
• The lawsuit is attempting to recover around $240 million connected to the acquisition of stock trading platform Embed Financial Technologies.
• The defendants are accused of taking advantage of lax controls, inflating the value of Embed, and overly quick negotiations with Embed founder Michael Giles that resulted in an ‘extravagant’ retention bonus.
FTX and Alameda Research Sue Former Executives
FTX and its sister entity Alameda Research have filed a lawsuit against their former executives alleging mismanagement of funds and lack of proper due diligence when acquiring stock trading platform Embed Financial Technologies. The move is part of an effort to recover approximately $240 million connected to the acquisition.
Accusations Against Former Management
The plaintiffs in the suit allege that the company’s „Insiders“ took advantage of lax controls within FTX, inflated the value of Embed, and undertook overly quick negotiations with Embed founder Michael Giles resulting in an ‚extravagant‘ retention bonus. Furthermore, they claim that there was no due diligence conducted on the company prior to purchase, instead focusing solely on speed.
Value Of Acquisition
The final deal included a Memorandum of Terms which gave the platform an enterprise value at $220 million with a $75 million retention bonus for employees – including $55 million directly paid to Giles himself. All told, it cost FTX Insiders around $248 million to acquire the company just weeks before FTX declared bankruptcy.
Goal Of Lawsuit
The goal of this lawsuit is for FTX’s new leadership team to recoup some or all of these losses by holding their former executives accountable for their actions while managing the company’s finances leading up to bankruptcy.
Conclusion
This legal action taken by FTX’s current CEO John Ray is seen as one step towards recovering funds lost during poor decisions made by previous management prior to filing for bankruptcy. It will be interesting to see how this case plays out in court over time as both sides attempt to make their case heard before a judge.