© Reuters. FILE PHOTO: Joseph Bankman, father of Sam Bankman-Fried, the founder of bankrupt cryptocurrency exchange FTX, leaves the courthouse, after U.S judge revoked Bankman-Fried’s bail, in New York, U.S., August 11, 2023. REUTERS/Eduardo Munoz/File Photo
By Dietrich Knauth
NEW YORK (Reuters) – Bankrupt crypto exchange FTX on Monday sued the parents of founder Sam Bankman-Fried, saying that Stanford professors Joseph Bankman and Barbara Fried used the company to enrich themselves at the expense of FTX’s customers.
FTX, now being led by turnaround specialist John Ray, said that company founder Sam Bankman-Fried ran FTX as a “family business” and misappropriated billions in customer funds for the benefit of a small circle of insiders, including his parents.
Sam Bankman-Fried has pleaded not guilty to charges that he defrauded FTX customers by using their funds to prop up his own risky investments. He is currently jailed ahead of a trial scheduled to begin Oct. 3. Other former FTX executives have pleaded guilty to criminal charges.
Bankman and Fried’s attorneys, Sean Hecker and Michael Tremonte, said in a joint statement that FTX’s claims were “completely false” and that the new lawsuit was a waste of funds that could be returned to FTX customers.
“This is a dangerous attempt to intimidate Joe and Barbara and undermine the jury process just days before their child’s trial begins,” Hecker and Tremonte said.
FTX’s lawsuit alleges that Bankman and Fried accepted a $10-million cash gift and a $16.4-million luxury property in the Bahamas from FTX, even as the company teetered on the brink of collapse. Bankman and Fried also pushed FTX to make tens of millions of dollars in charitable contributions, including to Stanford University, FTX said.
Bankman-Fried’s father, a tax specialist at Stanford Law School, often positioned himself as the “adult in the room” in a company run by his son, now 31, and other executives with little management experience. But Bankman “stayed silent” when he saw warning signs of fraud and did little to prevent FTX’s leadership from misappropriating customer funds, according to the lawsuit.
Fried was the strongest influence on FTX’s political contributions, causing Bankman-Fried and other executives to contribute millions of dollars directly to a political action committee that she co-founded, according to FTX.
FTX filed for bankruptcy in November 2022 in the wake of claims that it misused and lost billions of dollars worth of customers’ crypto deposits.
FTX has recovered more than $7 billion in assets to repay customers, and it is pursuing additional recoveries through lawsuits against FTX insiders and other defendants that received money from FTX before it went bankrupt.