The embattled crypto exchange FTX filed charges alleging four ex-employees leveraged their connections to withdraw funds at the onset of FTX’s instability.
The court filing indicates that the ex-staffers were privy to the FTX’s stability struggles before pulling out their investment.
FTX Pursues Million-Dollar Withdrawal by Ex-Employees
The lawsuit charges former Salameda employees acted in the directive of former chief executive Sam Bankman-Fried. The quartet who worked at the Hong Kong-based affiliate is battling a $157 Million claim from the bankrupt crypto exchange.
Besides Kevin Nguyen, the lawsuit identified the individuals as Darren Wong alongside three Burgess brothers, Michael, Lesley, and Matthew. The lawsuit alleges that they exploited the personal ties to expedite the withdrawal of their digital wealth when the FTX future attracted uncertainty.
The filings indicate that the ex-staffers executed the withdrawals within 90 days before the FTX filed for bankruptcy protection. The documents filed before the court indicated that the former employees acted upon the awareness of FTX’s troubles to withdraw assets during the preference period.
FTX Alleges Withdrawals Violated the Preference Period Provision
Citing the FTX bankruptcy filing date as November 11, the withdrawal violated the US bankruptcy law that allows creditors to sue for recovery assets withdrawn during the preference period. The counsel identified the process as clawback provided for under the bankruptcy code.
The submission estimates the illicit transfers at $157.3 million. The counsel’s submission singled out the violation worsened by $123 million the accused withdrew after November 7.
The counsel submitted that Michael Burgess reaped the highest with $73 million days to the bankruptcy filing date. The filing illustrated that the accused leveraged their links with the FTX Group personnel to prioritize their withdrawal requests as other customers experienced delays.
FTX Pursues Burgess for Primary Involvement in Facilitating Withdrawal Requests
Matthew Burgess bears the primary responsibility as he enlisted former colleagues to expedite the pending withdrawal requests submitted from FTX.US, though misrepresented as his.
The filing submits that final withdrawals were executed hours before FTX.com suspended withdrawals on November 8 last year.
The filing cites that the accused earned enormous benefits by trading crypto during the preference period. The proactive withdrawal during this period allowed the former staffers to draw better prices for the crypto assets. The filing indicated that the ex-staffers were bound to realize better prices since most tokens exchanged hands at better levels and only dipped following the FTX implosion.
The lawsuit indicates that the ex-employees actively traded via their entities between January and November last year. The filing demonstrates that the employees utilized 3Twelve and BDK, whose monthly trading volumes were $100M to $400M.
Employees Realized Sizable Trading Capital From FTX Group
The plaintiff’s attorney indicated that a sizable portion of the trading capital has traces from the FTX Group. In particular, the defendants are said to benefit from substantial transfers from exchange accounts linked with the FTX Group entities.
The filing identifies that Darren Wong benefited from 13.1 million FTT. Michael Burgess benefited from 1 million SOL. The filing showed that Michael, Nguyen, and Wong would earn $4 million in bonuses.
The submission made in the court indicates that the accused realized substantial profits through trading. The counsel demonstrates that Darren Wong’s earnings exceeded $70M by trading FTT on FTX.com. Wong gained $30 million just before the FTX sought bankruptcy protection.
The lawsuit comes when Sam Bankman-Fried is detained following the cancellation of a bond that placed him under house arrest. The former crypto leader awaits the trial scheduled to start on October 3.
Attempts to have Bankman-Fried released before the trial proceedings have been dismissed. The counsels representing the former chief executive have recently sought his release to review the volume of documents. While the court opposed his release, it allowed in-prison meetings and consultations with the counsel.
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