FTX seeks to recover more than $240 million from Embed acquisition

FTX seeks to recover more than $240 million from Embed acquisition


By Dietrich Knauth

NEW YORK (Reuters) – Bankrupt crypto exchange FTX is seeking to recover more than $240 million it paid for stock trading platform Embed, saying former FTX insiders failed to investigate before defunding the essentially worthless, bug-ridden purchased software platform.

FTX filed three lawsuits in U.S. Bankruptcy Court in Delaware late Wednesday, targeting former FTX insiders, including indicted founder Sam Bankman-Fried, Embed executives including founder Michael Giles, and Embed shareholders. FTX alleged that Bankman-Fried and other FTX insiders misappropriated corporate funds to acquire stakes in Embed as part of the transaction.

FTX closed the acquisition of Embed just six weeks before the crypto exchange went bankrupt in November. FTX lost billions in client money while supporting its own high-risk investments, actions current CEO John Ray called “old-fashioned embezzlement.”

FTX’s new management has been trying to recover assets to pay back customers since its bankruptcy filing. U.S. law allows debtors to recover payments made under certain circumstances shortly before filing for bankruptcy and use those funds to repay other creditors.

FTX recently tried to sell Embed, but the highest bidder was Giles, who only offered $1 million.

FTX’s auction “leaves no doubt” that the $220 million it spent to acquire Embed was “massively inflated relative to the fair value of the company, which Giles was well aware of,” FTX wrote in its court case.

FTX planned to use Embed’s software to add stock trading to its crypto exchange platform, but Embed’s software was “essentially worthless,” according to the lawsuits. FTX did almost no research on Embed and “gave speed above everything else,” they added.

Embed’s own insiders were surprised that FTX paid so much for the company after little more than a meeting with Giles, who described FTX’s approach to due diligence with a cowboy emoji in internal posts.

As part of the purchase, FTX also paid Embed employees $70 million in retention bonuses. Most of that went to Giles, who later worried how to explain his $55 million bonus to other Embed shareholders, according to the lawsuits.

FTX is seeking to recover $236.8 million from Giles and Embed insiders, and $6.9 million from Embed minority shareholders.

(Reporting by Dietrich Knauth, editing by Alexia Garamfalvi and Richard Chang)