Bankman-Fried using company funds for criminal defense, FTX says

A new lawsuit filed in bankruptcy court by FTX's caretaker leadership against Sam Bankman-Fried and other senior FTX executives alleges that Bankman-Fried’s father is bankrolling the failed crypto mogul’s defense through an illegal loan from the company.

The complaint filed Thursday, the latest recovery-related lawsuit filed in the complex multinational bankruptcy process playing out in U.S. Bankruptcy Court for the District of Delaware, seeks to avoid payment or clawback hundreds of millions of dollars from Bankman-Fried, FTX co-founder Gary Wang, former Alameda Research head Caroline Ellison and senior FTX executive Nishad Singh.

Lawyers representing current FTX corporate group leadership have engaged in a series of multimillion dollar clawback attempts recently, aiming to take back funds they say were unlawfully invested or given to companies or individuals by Bankman-Fried and FTX executives.

Along with high-dollar instances that have already been reported, like a $546 million purchase of stock in the trading app company Robinhood, the complaint details other instances of self-dealing involving Bankman-Fried’s family.

According to lawyers for the FTX group, Bankman-Fried transferred $10 million of FTX US funds to a personal account of his on the platform, then one minute later sent that amount to an FTX US account under his father’s name. According to the complaint, Bankman-Fried’s father Joseph, a Stanford University law professor, then transferred nearly $7 million to his personal accounts at Morgan Stanley and TD Ameritrade; he lost over $1 million in the remaining FTX US account funds on failed cryptocurrency trades.

Lawyers for the company claim that Bankman-Fried is now using the remaining funds he gave his father to fund his own criminal defense.

The island of Mr. Bankman-Fried

In another instance detailed in the lawsuit, a plan was created to purchase Nauru, a sovereign island microstate within Micronesia, in order to create a post-apocalyptic haven for believers in effective altruism. Sam Bankman-Fried vocally espoused the philosophy, which essentially boils down to making as much money as possible in order to give away as much as possible to worthy causes. 

“One memo exchanged between Gabriel Bankman-Fried and an officer of the FTX Foundation describes a plan to purchase the sovereign nation of Nauru in order to construct a ‘bunker / shelter’ that would be used for ‘some event where 50%-99.99% of people die [to] ensure that most EAs [effective altruists] survive’ and to develop ‘sensible regulation around human genetic enhancement, and build a lab there,’” the complaint quotes the younger Bankman-Fried as writing.

Adds the bankruptcy complaint: “The memo further noted that ‘probably there are other things it’s useful to do with a sovereign country, too.’”

A spokesperson for Gabriel Bankman-Fried claims that he was not involved in the creation of the memo. “Gabriel Bankman-Fried did not create, endorse, contribute to, or draft a plan to acquire the island of Nauru. In truth, Gabe received by email a link to the memo, which he did not write or request, and did not forward to anyone else,” they said.

According to the complaint, the FTX Foundation received money that included funds commingled with FTX customer money. Lawyers filing the complaint also claim that a majority of the $35 million Sam Bankman-Fried directed to Guarding Against Pandemics, another charity established by the Bankman-Frieds — one that unusually had its own political donation arm — came from Alameda Research accounts.

The complaint also echoes previous allegations that Bankman-Fried, Singh and another, unnamed FTX Group senior executive made over $100 million in political donations. Most of the money came from funds commingled with FTX customer money, the complaint claims, while occasionally funding for the donations came from "purported loans" from the FTX group.

Those donations relate to one of the criminal charges Bankman-Fried faces.

This article has been updated to show Gabriel Bankman-Fried was not the author of the memo.