With billions worth of crypto in need of liquidating, a criminal court case on the horizon for its CEO Sam Bankman-Fried (SBF), and a lawsuit against his parents ongoing, there seems to be no end to the FTX debacle.
However in a case of the tables turning, the now-defunct crypto exchange is on the filing side of the courtroom. More specifically, FTX has ordered a $157 million lawsuit against five of its ex-employees.
The defendants in question are Michael Burgess, Matthew Burgess, Lesley Burgess, Kevin Nguyen, and Darren Wong, who are five former employees of Salameda, a Hong-Kong-based affiliate company that was also under the the reign of SBF.
The lawsuit comes amid allegations that the individuals had exploited their ties with FTX to prioritise the withdrawal of their personal funds once questions were raised over the integrity of the crypto exchange.
Poignantly, the in-question withdrawals were said to have taken place in the 90 days prior to FTX’s bankruptcy filing on November 11 2022 (known as the ‘Preference Period’). Per bankruptcy laws, when a debtor makes a payment to a creditor (i.e. a withdrawal) and the debtor files for bankruptcy within 90 days of that action, Bankruptcy Courts can force the creditor to pay the money back to the debtor, so that such funds can then be distributed to all of the debtor's creditors.
Such process is known as a ‘clawback’ under the bankruptcy code, with the amount FTX wants to ‘clawback’ said to be $157.3 million. Rather suspiciously, over $123 million of this amount was said to be withdrawn by the individuals after November 7, with the final withdrawals taking place just hours before the exchange pulled the plug on such feature on November 8.
Michael Burgess was said to be the biggest profiteer of the lot, as he pocketed around $73 million throughout the process. Further, Burgess’s supposed guilt in the matter has been ramped-up by the fact that he’d ‘enlisted other FTX Group employees to ‘push out’ certain pending withdrawal requests’ from his account after he’d left the company.
Throughout the same months prior to FTX’s bankruptcy filing - and in wake of leaving the company - the defendants also allegedly engaged in trading through other entities. Although not a big deal on surface, a substantial portion of these funds - said to be in the monthly volume range of $100-400 million - apparently came from the FTX Group, with approximately 13.1 million FTT being sent to Darren Wong, 1+ million SOL sent to Michael Burgess, and nearly $4 million USD of ‘bonuses’ being split between Michael Burgess, Nguyen, and Wong.
Adding salt to the wounds, the defendants were also said to have made massive gains from trading these FTX-sourced assets - where most notably, Darren Wong profited $70+ million from FTT trades on the exchange, with around $30 million of this being earned in the immediate lead-up to FTX's bankruptcy petition.
Although this staff undermining must’ve damaged SBF’s corrupted ego somewhat, it’s still safe to assume that the case is fairly low in the pecking order when it comes to his biggest concerns as of today.
We say this because his charges of wire fraud and conspiracy to commit several other types of fraud will be put forward in the U.S. District Court for the Southern District of New York on October 3, which is now less than two weeks away.
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This article is intended for educational purposes and is not financial advice.
