Bankruptcy Spurs Bid to Reclaim Funds
Mired in bankruptcy, FTX is striving to recoup over $240 million it splurged on the stock trading platform Embed, alleging that former FTX insiders conducted no due diligence before purchasing the bug-riddled and virtually worthless software platform.
Legal Action Targets Former Insiders and Embed Executives
FTX launched three lawsuits late Wednesday in a U.S. Bankruptcy Court in Delaware. The defendants include former FTX insiders like the embattled founder Sam Bankman-Fried, executives from Embed, including founder Michael Giles, and Embed shareholders. FTX accuses Bankman-Fried and other insiders of misappropriating company resources to secure stakes in Embed as part of the deal.
Tragic Fall of a Crypto Giant and Ill-Advised Acquisition
Merely six weeks before FTX's catastrophic descent into bankruptcy in November, the crypto exchange had finalized the Embed deal. FTX lost billions in client funds supporting its high-risk investments, behaviors that the incumbent CEO John Ray labeled "old-fashioned embezzlement."
New Management Scrambles to Restore Customer Trust
Since the bankruptcy filing, FTX's new administration has been scrambling to recover assets to compensate customers. U.S. legislation empowers debtors to retrieve payments made under certain conditions before a bankruptcy declaration, funneling these funds to settle with other creditors.
Failed Attempt to Sell Embed Amplifies Folly
FTX recently made an unsuccessful attempt to offload Embed. Unfortunately, the highest bid came from Giles, who offered $1 million. This has underlined FTX's flawed assessment of Embed's value, given that they spent $220 million in the initial acquisition.
Questionable Practices in the Acquisition
FTX planned to integrate Embed's software into its crypto exchange platform, but it was ultimately deemed "worthless." Moreover, FTX barely investigated Embed, seemingly prioritizing speed over careful evaluation. Even Embed insiders were flabbergasted that FTX paid such a hefty sum after just a single meeting with Giles.
Extravagant Retention Bonuses Raise Eyebrows
As part of the Embed deal, FTX paid a whopping $70 million in retention bonuses to Embed employees, with the majority going to Giles. This raised questions, especially since Giles later expressed concern about justifying his $55 million bonus to other Embed shareholders.
The Scope of FTX's Recovery Efforts
FTX is now endeavoring to reclaim $236.8 million from Giles and other Embed insiders, alongside $6.9 million from Embed's minority shareholders. The unfolding saga underscores the perils of hasty acquisitions and inadequate due diligence in the high-stakes world of cryptocurrency trading.