FTX's new leadership team, which took over the bankrupt cryptocurrency exchange, has filed a series of lawsuits aimed at recovering $240 million in connection with the acquisition of the stock trading platform Embed. The plaintiffs in all three lawsuits include FTX sister hedge fund Alameda Research and West Realm Shires (WRS) Inc., which is the corporate entity under which FTX US operated as a crypto trading company. FTX debtors are suing founders Sam Bankman-Fried, Nishad Singh, and Zixiao "Gary" Wang, Embed founder Michael Giles, and an array of Embed shareholders, claiming that FTX can recover the funds under bankruptcy law, and that the funds for the acquisition came from Alameda and were misappropriated.
WRS had purchased Embed with the aim of building its empire by providing FTX.US customers the ability to trade stocks on its platform in addition to crypto assets. However, the complaints allege that FTX executives conducted little to no due diligence before acquiring the stock platform and rushed to complete the six-month transaction ahead of the crypto exchange's collapse. The suit against Giles points to internal communications from Embed employees that acknowledge that the then-president of FTX.US had discovered "many bugs" in the system ahead of the deal closing and that Giles admitted the platform was "experiencing multiple issues per day."
FTX recently tried to sell Embed, but the highest bidder was Giles, who offered only $1 million. The plaintiffs wrote in the lawsuit that the auction "leaves no doubt" that the $220 million FTX spent to acquire Embed was "wildly inflated relative to the company's fair value, which Giles well knew." FTX is seeking to recover $236.8 million from Giles and Embed insiders, as well as $6.9 million from Embed minority shareholders.