For months, John Jay Ray III, the corporate turnaround expert appointed to oversee the bankruptcy of the FTX crypto exchange, attacked the company’s founder, Sam Bankman-Fried, accusing him of “old fashioned embezzlement.”
Now, Mr. has a new target. Ray: the parents of Mr. Bankman-Fried.
On Monday, FTX filed a case in federal court in Delaware accusing Joe Bankman and Barbara Fried, longtime Stanford law professors, of using their “access and influence within the FTX enterprise to enrich themselves.” The lawsuit seeks to recover millions of dollars the couple received from their son.
In the complaint, FTX lawyers said that Mr. Bankman and Ms. Fried a $10 million cash gift from Mr. Bankman-Fried, as well as a $16.4 million home in the Bahamas, where FTX is based, purchased by the exchange . The suit also claims that Mr. Bankman to cover up the complaints of a former lawyer for his son’s business, and Ms. Mr. Fried Bankman-Fried and another FTX executive evaded disclosure requirements for political donations.
The couple “either knew – or ignored the glaring red flags that indicated – that their son, Bankman-Fried, and other FTX Insiders were orchestrating an extensive fraudulent scheme,” said the case.
A spokesman for Mr. Bankman and Ms. Fried did not immediately respond to a request for comment.
FTX filed for bankruptcy protection in November, after a run on deposits exposed an $8 billion hole in the exchange’s accounts. The next month, federal prosecutors in Manhattan charged Mr. Bankman-Fried orchestrated a scheme to use customer deposits to finance billions of dollars in venture capital investments, political donations and luxury real estate purchases. He pleaded not guilty, and is scheduled to go to trial on October 3
The collapse of FTX brought an investigation into Mr. Bankman and Ms. Fried. A decorated tax professor, Mr. Bankman is an FTX employee who is deeply involved in the company’s efforts, while Ms. Fried, also a respected scholar, ran a political-donor network that his son helped fund.
According to the lawsuit, Mr. Bankman arranged hundreds of millions of dollars in loans to top employees and was listed in an internal document as a member of the company’s management team. In the messages cited in the case, Mr. Bankman that he receives a salary of only $200,000 a year, compared to the $1 million he thought he would get.
“Gee, Sam I don’t know what to say here,” he wrote in an email cited in the suit. “This is the first [I] I heard about 200K a year salary!”
Soon, Mr. sent him. Bankman-Fried the $10 million gift, the lawsuit said. Mr. Bankman also flew on private jets and spent $1,200 per night on FTX hotel stays, according to the lawsuit, and he made a cameo appearance with comedian Larry David in an FTX commercial during the 2022 Super Bowl.
Mr. pushed Bankman played his role in the commercial, the lawsuit said, citing him as saying he wasn’t obsessed with celebrities and didn’t “really care about meeting, say, Tom Brady. But Larry David….”
The lawsuit also claims that Mr. Bankman to cover up allegations by a former FTX attorney that some of Mr. Bankman-Fried was involved in money laundering and price manipulation. Instead of looking into those claims, the lawsuit said, Mr. Bankman to investigate the lawyer.
Ms. Fried never worked for FTX, but he was heavily involved in his son’s work, the lawsuit said. According to the complaint, he advised her about political donations, encouraging her and other executives to make “straw donations” that concealed that the money was coming from FTX, a strategy designed to “avoid (if not violates) federal campaign finance disclosure rules.”
In an August 2022 email to Mr. Bankman-Fried, noted in the suit, brought in another donor who “will only give in an undisclosed form” and said she “is strongly encouraged to do the same — or change one person’s name to another.”
Federal prosecutors accused Mr. Bankman-Fried of orchestrating a straw donation scheme, and two of his top advisers, Nishad Singh and Ryan Salame, pleaded guilty to participating in it.
Mr. Bankman and Ms. Fried often visits the Bahamas, staying in a 30,000-square-foot property with ocean views. Since FTX went down, the couple said they “didn’t believe” they owned the house. But according to the suit, a subsidiary of FTX paid for the house; Mr. emailed Bankman to a top FTX executive in May 2022, who invited him and others to “celebrate the house you helped us buy/move into,” the complaint says. He and Ms. Fried was granted permanent residency in the Bahamas last October, the suit says, with FTX covering $30,000 in fees associated with the applications.
Mr. also asked Bankman employees FTX if the company that provides landscaping services for the home can bill FTX directly, according to the lawsuit. And a month after closing the purchase, the complaint said, Ms. Fried FTX employees placed online orders for a sofa, at least eight vases and a Persian hand-knotted rug valued at more than $2,500.
