- Sam Bankman-Fried and two other former FTX managers have been sued by FTX over the acquisition of Embed
- FTX CEO John Ray wants to claw back the $250 million that the company spent acquiring the stock clearing firm
- Ray argues that the purchase was rushed through with minimal due diligence and FTX overpaid
FTX and two related companies have instigated legal action against former executives Sam Bankman-Fried, Nishad Singh, and Gary Wang, accusing the trio of improperly utilizing FTX Group’s resources to acquire stock clearing firm Embed Financial Technologies, which led to the depletion of assets. FTX, FTX.US and Alameda Research are seeking to claw back $250 million from the former managers, representing the first official response from current FTX CEO John Ray against the previous management team.
FTX Bought Embed at Inflated Price
The court filing claims that the former FTX managers exploited FTX Group’s inadequate controls and recordkeeping practices to artificially inflate the valuation of Embed, further asserting that the defendants knowingly purchased the platform at an inflated price, surpassing its actual worth.
FTX initiated the acquisition negotiations with Michael Giles, the founder and CEO of Embed, towards the end of March 2022. By mid-April, both parties had signed the “Memorandum of Terms,” which established Embed’s value at $220 million and included a $75 million retention bonus for the platform’s employees, with $55 million allocated to Giles himself.
However, when the deal was eventually concluded in September, just a few weeks prior to FTX Group’s bankruptcy, the FTX trio had spent over $248 million to acquire Embed. The defendants are accused of displaying minimal to no due diligence regarding Embed, prioritizing speed above all other considerations and accepting all the terms put forth during negotiations by Michael Giles, the founder and CEO of Embed. Giles walked away with approximately $157 million from the deal, alongside an “extravagant and unjustified retention bonus” intended to incentivize its swift completion.
Ray Wants the $250 Million Back
This isn’t all that the Bankman-Fried, Singh, and Wang are accused of, however; the trio have also been accused of deliberately causing FTX to issue Simple Agreements for Future Equity (SAFEs), which could be converted into common stock in the event of a Chapter 11 bankruptcy filing. Giles has also been separately targeted, with the companies filing a separate lawsuit, known as an adversary lawsuit, against Giles, the employees, and former equity holders of Embed.
The purpose of the lawsuit is to invalidate the SAFEs and recover the funds expended during the acquisition of Embed, with the plaintiffs also demanding the trio also foot the legal bill for doing so.
