FTX Sues Former Hong Kong Employees for $157 Million
FTX, led by John J. Ray III, is taking legal action against its former employees and their companies, seeking $157 million in damages. The lawsuit accuses the individuals and entities of fraudulent withdrawals during the preferential period. FTX has been in bankruptcy proceedings for over 10 months and has been attempting to recover funds through legal means.
The Defendants and Allegations
The individuals and companies being sued by FTX are Michael Burgess, Kevin Nguyen, Darren Wong, Matthew Burgess, Jing Yu, Lesley Burgess, 3Twelve Ventures Ltd., and BDK Consulting Ltd. FTX claims that although they were employed by Salameda in Hong Kong, they held senior positions within the FTX Group. They allegedly used FTX Group’s funds for trading activities, averaging monthly notional trading volumes between $100 million and $400 million from January to November 2022.
Preferential Withdrawals and Avoidable Transfers
FTX alleges that the defendants took advantage of preferential withdrawals, depriving other FTX creditors of fair opportunities for withdrawal. The assets withdrawn by the defendants during this period are valued at approximately $157.3 million. FTX argues that these withdrawals are avoidable under Section 547 of the Bankruptcy Code.
Previous Clawback Actions
FTX has taken legal actions against various individuals and organizations to recover funds for creditors. In September 2022, the company sued the parents of former CEO Sam Bankman-Fried for alleged misappropriation of funds. FTX has also urged politicians and members of Congress to voluntarily return donations made to them.
Some beneficiaries have already voluntarily returned funds, including the New York Metropolitan Museum of Art and Stanford University. FTX is also seeking to recover funds from Genesis, a bankrupt crypto lender, and its philanthropic arm.
Hot Take: FTX Continues Clawback Efforts Amid Questions of Creditor Repayment
FTX’s ongoing legal actions demonstrate its commitment to recovering funds for creditors. However, there are doubts about whether any creditors have received their funds yet, with one activist suggesting that lawyer fees are consuming the recovered funds. It remains to be seen how successful FTX will be in its clawback efforts and whether creditors will eventually receive their due.
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