FTX, the cryptocurrency exchange that filed for bankruptcy, has taken legal action against former employees of Salameda, an entity based in Hong Kong affiliated with FTX. This move is an attempt to recover approximately $157.3 million, as detailed in a recent court filing.
The lawsuit specifically names Michael Burgess, Matthew Burgess, Lesley Burgess (their mother), Kevin Nguyen, Darren Wong, and two companies connected to them. These individuals and entities allegedly held accounts on both FTX.com and FTX US, and they are accused of engaging in fraudulent asset withdrawals in the period leading up to FTX’s declaration of bankruptcy on November 11, 2022.
The court filing asserts that during the 90-day period prior to the bankruptcy filing, known as the Preference Period, the defendants received preferential transfers through these withdrawals. These transactions are deemed recoverable under the Bankruptcy Code. The filing further claims that the defendants rushed to withdraw assets and exploited their connections within FTX to ensure they received preferential treatment over other customers.
This legal action is not the first attempt by the FTX bankruptcy estate to recoup payments from related parties. Prior efforts have targeted Sam Bankman-Fried, FTX’s former CEO, as well as his executives, Bankman-Fried’s parents, and FTX’s philanthropic and life science divisions. Additionally, there are efforts to recover payments made to Genesis Global Capital, which is owned by Digital Currency Group, the parent company of CoinDesk, and is also facing bankruptcy. Earlier this year, FTX reported recovering over $5 billion in various assets, while in June, it was revealed that the company owed its customers a staggering $8.7 billion.
The court filing also alleges that Matthew Burgess enlisted the help of other FTX employees through the messaging platform Slack to expedite specific withdrawal requests from one of Michael Burgess’ FTX US exchange accounts, falsely representing it as his own. These transfers were executed just hours before FTX suspended withdrawals on November 8, 2022. Of the total $157.3 million in question (based on August 31, 2023, pricing), over $123 million was withdrawn on or after November 7.
The filing asserts that these transfers were carried out with the intention of obstructing, delaying, or defrauding FTX US’s present or future creditors.
Sam Bankman-Fried, the former CEO of FTX, is presently incarcerated and is preparing for his upcoming trial, set to commence on October 3. Recently, his attempt to secure release from jail prior to the trial was rejected by an appeals court.