Since November, after the collapse of the crypto exchange FTX, a caretaker estate has been trying to unwind the disastrous investments of Sam Bankman-Fried. Led by veteran lawyer John Ray, who previously managed Enron's bankruptcy, lawyers have been combing through the decisions that led to the downfall of the $30 billion empire.
Late Wednesday, the new FTX management team revealed its newest finding, alleging that the company under Bankman-Fried had recklessly spent over $350 million in a bid to win an operating license in Europe. The estate is seeking to claw back the funds.
According to a new lawsuit filed by the caretaker estate, Bankman-Fried's FTX pursued an acquisition of a Swiss financial services firm called Digital Assets DA AG, or DAAG, valuing the company at $400 million.
The estate alleges that FTX sought the acquisition not only because DAAG's founders could provide access to the European market by acquiring necessary operating licenses, but also because DAAG's founders were close associates of Bankman-Fried. FTX ended up acquiring DAAG for $376 million, rebranding it as FTX Europe.
The investment did not pay off. According to the lawsuit, FTX Europe's new executives lavishly spent the company's money on property and personal expenditures, including a $146,450 armored Cadillac Escalade, as well as the salaries of a butler, a full-time chef, and a housekeeper for Patrick Gruhn, the head of FTX Europe.
Part of the spending stemmed from a generous bonus given to Gruhn and another FTX Europe executive, Robin Matzke, for acquiring a Cyprus investment firm that would grant the company one of its desired operating licenses. FTX Europe was able to complete the acquisition, and gain the license, for €2 million (about $2.2 million today).
The lawsuit alleges that FTX's investment in DAAG was clouded by the relationship of one executive, Brandon Williams, with Bankman-Fried. Williams had promised Bankman-Fried that DAAG's leadership team had close relationships with regulators, although it never managed to attain desired licenses in either Switzerland or Lichtenstein.
"The hollowness of Williams's and Gruhn's claims and the inexistent value of those relationship[s] for the FTX Group would have been revealed by even a modicum of regulatory due diligence," wrote the lawyers, who are seeking to claw back over $323 million from the former FTX Europe executives. Williams and Gruhn did not immediately respond to a request for comment.
The lawsuit is the latest in a series of clawback efforts from the FTX estate, alongside criminal and civil charges against Bankman-Fried and other FTX executives by the Department of Justice, Securities and Exchange Commission, and Commodity Futures Trading Commission. Along with mismanaged investments, the cases allege that FTX used misappropriated customer funds from its crypto exchange for its prolific spending.
In a similar case in May, the FTX estate alleged that Bankman-Fried's operation misspent $240 million on a bug-ridden stock trading platform called Embed, which proved to be worthless. Another in March sought to recover $460 million from a Bahamas-based crypto hedge fund, Modulo Capital, founded by other acquaintances of Bankman-Fried.
The latest lawsuit against the former FTX Europe executives will be considered in the U.S. Bankruptcy Court for the District of Delaware.
