On Thursday night, the lawyers of disgraced crypto founder Sam Bankman-Fried filed an objection in the bankruptcy proceedings of his crypto exchange, FTX, to retain 56 million shares of Robinhood, currently valued at around $450 million.
The shares of Robinhood have become a major point of contention in the Delaware bankruptcy court case. While Bankman-Fried owned that equity, he borrowed hundreds of millions of dollars from FTX’s affiliated trading firm, Alameda Research, to purchase it through a separate entity called Emergent Fidelity Technology, of which he owns 90%, along with FTX cofounder Gary Wang.
Different parties have tried to seize the Robinhood shares, including the FTX bankruptcy estate and the crypto lender BlockFi—Bankman-Fried's Emergent had pledged the stock as collateral for more than $600 million in loans that BlockFi provided Alameda ahead of its bankruptcy. The U.S. Department of Justice is also staking a claim: On Jan. 4, U.S. attorney Seth Shapiro told the judge overseeing the FTX bankruptcy that prosecutors are in the process of seizing the shares.
In Thursday’s objection, Bankman-Fried's lawyers argued that the corporation in control of the Robinhood equity is not a party to the bankruptcy proceedings, as it's not owned by Alameda or any other entity implicated in the bankruptcy. Emergent had acquired the shares in a separate filing with the Securities and Exchange Commission.
The DOJ charged Bankman-Fried with eight counts of federal fraud in December related to the collapse of FTX and Alameda. He pled not guilty, and a trial is set for October.
In their objection, Bankman-Fried's lawyers wrote that the only way for FTX debtors to obtain the shares would be advancing a “fraudulent transfer claim,” or that the shares were transferred from Alameda to Emergent under suspicious circumstances.
As court proceedings continue in both the bankruptcy case and Bankman-Fried's criminal trial, jockeying for the hundreds of millions of dollars’ worth of shares will continue, especially as the value of other holdings—such as FTX’s proprietary FTT token—has evaporated.
Bankman-Fried's lawyers argued that he requires the Robinhood shares to pay for his criminal defense. Bankman-Fried, whose worth was once valued at $26.5 billion, has stated that he only has $100,000 left in his bank account.
Citing case law, the lawyers wrote that a “financial inability to defend oneself has serious consequences.”
The FTX debtors, Bankman-Fried's lawyers continued, only face the possibility of economic loss.
