Legal action by failed crypto exchange FTX against former employees of Hong Kong affiliate

A high-risk legal showdown recently emerged pitting the now-bankrupt crypto exchange FTX against former employees of its Hong Kong affiliate. 

The battle to recover $157.3 million in allegedly preferentially or fraudulently transferred assets has taken center stage, shedding light on an intricate web of crypto litigation and legal maneuvering.

Failed crypto exchange FTX sues former employees of Hong Kong affiliate for $157.3 million

In a legal battle that underscores the complex and controversial nature of cryptocurrency asset recovery, FTX, the now-bankrupt cryptocurrency exchange, has filed a lawsuit against former employees of its Hong Kong affiliate. 

The suit alleges preferential or fraudulent asset transfers, and FTX seeks to recover approximately $157.3 million in assets. This major development in the world of cryptocurrency litigation was revealed in a recent court document.

Those named in the lawsuit include Michael Burgess, Kevin Nguyen, Darren Wong, and Matthew Burgess, all former employees of Salameda, a Hong Kong-based FTX affiliate controlled by Sam Bankman-Fried, an influential figure in the cryptocurrency industry. 

In addition, Lesley Burgess and two other FTX-related entities are involved in the case.

The reason for the lawsuit between the Honk Kong subsidiary and former crypto exchange FTX

FTX’s lawsuit alleges that during the 90 days leading up to filing for Chapter 11 bankruptcy protection in November, these defendants engaged in activities that favored them at FTX’s expense. 

Specifically, they are accused of making withdrawals from their FTX.com and FTX US accounts with digital assets and fiat currency. According to the court filing, as of 31 August 2023, the total value of these assets is estimated at as much as $157.3 million.

Specifically, the lawsuit claims that most of these assets, over $123 million based on the 31 August 2023 price, were withdrawn on or after 7 November. Of this amount, as much as $73 million was allegedly fraudulently transferred to Michael Burgess.

The complexity of the scheme becomes evident in the lawsuit, which alleges that Matthew Burgess, who was an employee of the FTX Group at the time, recruited other FTX Group employees to facilitate the expedited processing of withdrawal requests from one of Michael Burgess’ FTX US exchange accounts. This was done by deception and the account was misrepresented as belonging to Matthew Burgess himself.

Lesley Burgess, the mother of Michael Burgess and Matthew Burgess, was also involved in the withdrawals. According to the filing, she managed to withdraw the assets “just hours before the FTX.com exchange stopped withdrawals on 8 November 2022,” suggesting a calculated effort to secure the assets before they became less accessible.

Several FTX lawsuits pending: what are the motivations?

This lawsuit comes on the heels of another major legal action taken by FTX, in which it sued the parents of FTX founder Sam Bankman-Fried, namely Joseph Bankman and Barbara Fried. The goal of this legal action is to recover funds allegedly “fraudulently transferred and misappropriated.”

The recent court filing reveals that Joseph Bankman and Barbara Fried, both esteemed professors at Stanford Law School, are accused of using their positions of influence within FTX to amass vast wealth through means FTX believes were fraudulent. 

One glaring allegation is that Bankman played a leading role in directing donations from the FTX group, totaling more than $5.5 million, to his employer, Stanford University, between November 2021 and May 2022.

Stanford University, in response to this revelation, announced its intention to return the substantial “gifts” it received from FTX. This move follows a broader debate over the ethical implications of academic institutions accepting donations from cryptocurrency-related entities.

In conclusion, FTX’s legal actions against former employees and prominent figures related to the exchange reflect the evolution and multiple challenges facing the cryptocurrency industry, especially in times of financial hardship. 

The search for approximately $157.3 million in assets and allegations of fraudulent activity paint a complex picture of the ongoing battle between cryptocurrency exchanges, their affiliates, and stakeholders. The unfolding of this legal saga reminds us of the need for vigilance and transparency in the cryptocurrency space.