FTX Tries to Reclaim $244M From Overpriced Embed Deal
- FTX claws back $240M from Embed insiders and executives after “wildly inflated” acquisition.
- FTX filed a lawsuit on May 17 against former CEO Sam Bankman-Fried and other insiders for the Embed acquisition.
- Embed’s CEO and shareholders are also facing a lawsuit seeking to claw back funds.
- FTX seeks to claw back $236.8M from Embed insiders as well as an additional $6.9M from smaller shareholders
FTX Inc.’s leadership is currently pursuing legal action to recover more than $240 million from insiders and executives that benefited from FTX’s acquisition of stock-clearing platform Embed in September 2022. The acquisition is alleged to have been conducted without sufficient due diligence.
On May 17, 2023, a lawsuit was filed against former Sam Bankman-Fried and other top FTX insiders concerning the Embed acquisition. On the same day, a separate lawsuit was filed seeking to claw back funds from Embed’s CEO Michael Giles and its shareholders, accusing FTX of paying a “wildly inflated” price of $220 million for the stock-trading platform.
Court documents filed in relation to the case provide a number of insights into the acquisition process and the concerns of some Embed employees. For instance, Embed’s Chief Technology Officer Laurence Beal expressed shock at the amount paid by FTX during a short meeting with Giles. In correspondence with another senior employee at Embed, Beal described due diligence process with a cowboy emoji. This suggests that there were concerns around the acquisition process and whether sufficient checks were carried out.
As part of the acquisition, FTX also paid Embed employees a total of $70 million in retention bonuses. The majority of that sum — $55 million — was paid to Giles, who later became concerned about how he would justify this amount to other employees. Between the day that Giles signed the acquisition agreement on June 10, 2022, and the closing of the acquisition on September 30, 2022, he was being paid a staggering $490,000 each day, assuming that he worked seven days every week. He was also awarded an additional $103 million when the deal closed, due to his standing as Embed’s largest shareholder.
This amount stands in stark contrast to Giles’ normal salary of $12,500 per month as Embed’s CEO. Despite a number of Embed employees being awarded retention payment agreements, Giles was the only one who was paid his full retention bonus on the closing date. The other employees were obligated to remain at Embed for two years if they wished to receive their full bonuses.
As a result of these disproportionate payouts to Embed insiders, FTX is now seeking to claw back $236.8 million from Giles and Embed executives as well as an additional $6.9 million from Embed’s smaller shareholders. In addition to this, lawyers have accused FTX insiders of taking “advantage of the FTX Group’s lack of controls and recordkeeping to perpetrate a massive fraud” by using misallocated funds to facilitate the purchase of Embed, while being fully aware that the company was insolvent when finalizing the deal.
FTX filed for Chapter 11 bankruptcy protection on Nov. 11, 2022. The firms’ new leadership — headed by bankruptcy attorney John Ray III — has been focused on clawing back funds to repay customers and creditors. More recently, FTX lawyers have considered a possible reboot of the exchange.
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