In a late court filing on Monday, the bankruptcy estate of FTX sued the parents of founder Sam Bankman-Fried, seeking to recover millions of dollars that it alleges were fraudulently transferred and misappropriated.
In the 63-page lawsuit, the estate alleges that FTX was a self-described "family business" despite its appearance as a sophisticated cryptocurrency exchange, that was "fueled by fraud." Allan Joseph Bankman, Bankman-Fried's father, is a top tax law professor at Stanford Law School, and the lawsuit alleges that he played a key role in "perpetuating this culture of misrepresentations and gross management" and in covering up allegations that would have exposed the fraud.
The lawsuit also alleges that Bankman-Fried's parents "siphoned millions of dollars" from the crypto empire for "their own personal benefit," with the estate now seeking to claw back the funds as part of its bankruptcy process.
After FTX's collapse in November, the bankruptcy estate led by former Enron steward Jon Ray III has sought to recover hundreds of millions of dollars paid out to politicians, corporations, and former members of the FTX inner circle.
The lawsuits have often been a scathing dissection of what went wrong with Bankman-Fried's project, such as an action in July against an entity called FTX Europe that argued the exchange had paid nearly $400 million for what amounted to a $2 million regulatory license. In another suit from July, the estate laid out details of mismanagement from former executives and family members, including that Bankman-Fried's brother had inquired about purchasing the island nation of Nauru using FTX funds to set up a philanthropic community prepping for the apocalypse.
The latest lawsuit is striking for its targets: Bankman-Fried's parents are both longtime academics at a top university, with Barbara Fried a renowned professor of philosophy at Stanford along with Bankman, the tenured law school professor.
"This is a dangerous attempt to intimidate Joe and Barbara and undermine the jury process just days before their child’s trial begins. These claims are completely false," said Sean Hecker, counsel for Joe Bankman, and Michael Tremonte, counsel for Barbara Fried, in a statement shared with Fortune. "Mr. Ray and his massive team of lawyers, who are collectively running up countless millions of dollars in fees while returning relatively little to FTX clients, know better."
The 'proverbial adult in the room'
The lawsuit corroborates details revealed in recent reporting on Bankman-Fried's parents, including in a feature last week by Bloomberg Businessweek, that they played key roles in the rise of FTX. The suit alleges that Bankman supported the development of the exchange, including "proudly" touting his status as an early investor in the trading firm Alameda, and advised his son on corporate and tax matters. He also took on a formal role as the senior advisor of the FTX Foundation and served as a "de facto officer, director, and/or manager" in the broader corporation.
"Bankman portrayed himself as the proverbial adult in the room," the FTX estate argues. Instead of raising alarms about misconduct, he "stayed silent" and actively worked to suppress efforts to "expose the fraud."
While Fried played less of an active role, the lawsuit alleges that she described herself as her son's "partner in crime of the noncriminal sort," serving as the most influential advisor in his campaign of political donations—a key part of the criminal case against Bankman-Fried and other FTX executives.
The FTX estate argues that Bankman and Fried either knew "or ignored bright red flags revealing" that their son was orchestrating a "vast fraudulent scheme." Moreover, they allegedly enriched themselves along the way, including a $10 million cash gift and a $16.4 million luxury property in the Bahamas. Bankman also arranged $1,200-per-night hotel rooms for himself, as well as plane tickets and tickets to the Formula 1 Grand Prix in France for a student at Stanford Law School, who was later employed as outside counsel to FTX.
Bankman also arranged a $1 million annual salary for himself, complaining when he only received around $17,000 a month. Emailing his son, Bankman wrote, "Gee, Sam I don't know what to say here," adding that he planned to put Bankman-Fried's mother on the thread.
Not all alleged benefits were financial. According to the lawsuit, Bankman received—at his request—a cameo appearance alongside comedian Larry David in a 2022 FTX Super Bowl commercial.
"I'm not a star-fucker and don't really care about meeting, say, Tom Brady," Bankman said, according to the lawsuit. "But Larry David..."
