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FTX sues Hong Kong affiliate on allegation that it defrauded the company before bankruptcy filing

The suit against the employees alleges that they fraudulently transferred the company’s assets in the month leading up to FTX’s bankruptcy filing.

Bankrupt crypto exchange FTX has filed a lawsuit against its former employees in the Hong Kong-based affiliate, Salameda.

The suit against the employees alleges that they fraudulently transferred the company’s assets in the month of FTX’s bankruptcy filing.

FTX sues Salameda

FTX said in a filing on Thursday that four former employees—Kevin Nguyen, Darren Wong, Matthew Burgess, and Michael Burgess— and two offer FTX-related firms had fraudulently withdrawn assets from FTX a few hours before the exchange halted non-fiat withdrawals on November 8, 2022.

The filing noted that the company seeks to recover $157.3M from the employees and the mother of Matthew and Michael, Lesley Burgess.

The court filing reads: “Each of these transfers to Defendant Michael Burgess was made with the intent to hinder, delay or defraud FTX.US’s present or future creditors.”

In the 90 days before the November 11, 2022, bankruptcy filing, known as the Preference Period, the defendants received the benefit of withdrawals and siphoned money from the exchange’s account.

The debtors specifically accused Micheal Burgess of pressuring employees to authorise particular pending withdrawal requisitions from one of his FTX.US exchange accounts, claiming that the account belonged to him.

“Withdrawals representing substantially the entire balances of the accounts registered in the names of Defendants Matthew Burgess and Lesley Burgess were processed successfully, with the final withdrawals completed just hours before the exchange halted withdrawals on November 8, 2022,” the court document read.

On or after November 7, more than $123M of the total $157.3M (based on pricing as of August 31, 2023) were withdrawn. The filing annexed messages received through Slack as proof of the requests.

Read more: Stanford University will return $5.5M cash “gift” from FTX

Company’s Bankruptcy was employees gain

The filing also noted that the employees heavily benefited from the collapse of FTX. The employees subsequently created their entities with trading capital coming from the exchange.

The employees actively traded through their own entities—3Twelve and BDK— from January to November 2022 following the FTC crash. Monthly trading volumes on these platforms ranged from $100M to $400M.

On Monday, FTX also filed a lawsuit against Sam Bankman-Fried, the founder of FTX, and his parents, Joseph Bankman and Barbara Fried, to recoup millions of dollars in “fraudulently transferred and misappropriated funds.”

According to the court document filed on Monday, Bankman and Fried, both professors at Stanford Law School, are accused of having “exploited their access and influence” within the company to profit themselves by millions of dollars.

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