FTX Files $157 Million Lawsuit Against Ex-Employees of Hong Kong Affiliate

Police & Regulations
Sep 23, 2023 at 12:43 pm

FTX, a prominent cryptocurrency exchange, has found itself embroiled in a legal battle as it grapples with bankruptcy. The exchange has initiated a lawsuit against former employees of Salameda, an entity closely tied to FTX, alleging their involvement in deceptive financial activities. This development sheds light on the complex web of financial dealings and connections within the cryptocurrency realm.

The lawsuit, detailed in a recent court filing, aims to recover a staggering $157.3 million. Central to the allegations are individuals including Michael Burgess, Matthew Burgess, Lesley Burgess, Kevin Nguyen, and Darren Wong, along with two affiliated companies. These parties are accused of orchestrating deceptive withdrawals in the 90 days leading up to FTX's bankruptcy filing on November 11, 2022, referred to as the "Preference Period."

The court filing contends that these withdrawals qualify as preferential transfers, potentially subject to legal challenge under the Bankruptcy Code. The defendants are alleged to have expedited their asset withdrawals and capitalized on their connections within FTX to ensure preferential treatment over other customers, heightening the complexity of the case.

This isn't the first instance of the FTX bankruptcy estate seeking restitution from affiliated parties. Previous targets have included the ex-CEO Sam Bankman-Fried, his executives, and even Bankman-Fried’s parents. Additionally, the estate is pursuing payments from Genesis Global Capital, owned by Digital Currency Group, which is grappling with its own financial challenges.

Reports indicate that FTX has managed to recover over $5 billion in various assets, underscoring the magnitude of the financial intricacies at play. However, as of June, it was revealed that the company owes its customers a substantial $8.7 billion, highlighting the gravity of the situation.

The filing also contains allegations, supported by messages from the communication platform Slack, that Matthew Burgess engaged other FTX employees in processing specific withdrawal requests from one of Michael Burgess' FTX US exchange accounts, deceitfully presenting it as his own.

These transfers were executed in close proximity to FTX's suspension of withdrawals on November 8, 2022. Out of the total $157.3 million, over $123 million was withdrawn on or after November 7. The filing asserts that these transfers were carried out with the intention to hinder, delay, or defraud FTX US's current or future creditors.

Sam Bankman-Fried, the ex-CEO at the center of these allegations, is presently incarcerated and preparing for his trial, scheduled to commence on October 3. A recent ruling by an appeals court rejected his request for release before the proceedings begin.

The legal proceedings surrounding FTX's bankruptcy filing serve as a stark reminder of the complexities and challenges inherent in the cryptocurrency industry. As the case unfolds, it will likely cast a spotlight on regulatory and oversight issues within the sector, and may have far-reaching implications for the broader cryptocurrency community.

Read more: Crypto Debt Market Surges: FTX Claims Trend

Related News

Sign up for daily crypto news in your inbox

Get crypto analysis, news and updates right to your inbox! Sign up here so you don't miss a single newsletter.