FTX is currently embroiled in a legal challenge surrounding the acquisition of stock-clearing platform Embed. In September, FTX bought Embed for a staggering $220 million, a price that is now being called “wildly inflated.” On one side of the issue, FTX leadership is seeking to recover more than $240 million from insiders and executives that benefited extensively from the acquisition. On the other hand, a lawsuit filed against former FTX CEO Sam Bankman-Fried and other top FTX insiders alleges that the acquisition was conducted without sufficient due diligence.
In a separate lawsuit filed the same day, Embed’s CEO Michael Giles and its shareholders are accused of gouging FTX by inflating the acquisition price. Interestingly, Embed’s own Chief Technology Officer Laurence Beal seemed to have been shocked by the amount paid by FTX for the company, expressing his disbelief in a correspondence with a cowboy emoji.
FTX also paid Embed employees a total of $70 million in retention bonuses, out of which $55 million went to Giles alone. Giles, who had a regular salary of $12,500 per month as Embed’s CEO, was paid his full retention bonus on the closing date, while other employees were required to remain at Embed for two years to receive their full bonuses.
FTX is now seeking to claw back $236.8 million from Giles and Embed executives, along with an additional $6.9 million from smaller shareholders. FTX lawyers have accused the company insiders of taking advantage of FTX’s lacking controls and record-keeping to commit a massive fraud, utilizing misallocated funds to purchase Embed. This was allegedly done while knowing full well that the company was insolvent when closing the deal.
Following the filing for Chapter 11 bankruptcy protection on November 11, 2022, FTX’s new leadership, headed by bankruptcy attorney John Ray III, has concentrated on recovering funds to repay customers and creditors. Recently, FTX lawyers have been considering a possible reboot of the exchange.
This case raises significant questions regarding the inner workings of such high-stakes acquisitions and emphasizes the need for transparency and proper due diligence. While the legal battle continues, the outcome of this case could potentially reshape the landscape of similar acquisitions in the future.
Source: Cointelegraph
