- FTX has accused former employees of Salameda, an affiliate of FTX Group, of fraudulent transfer of FTX funds.
- The bankrupt crypto exchange intends to recover from persons or entities all assets received during the preference period.
Crypto exchange FTX has filed lawsuits against former employees of Salameda Ltd, a Hong Kong affiliate of the FTX Group formerly controlled by Sam Bankman-Fried, to “avoid and recover” about $157 million.
According to the filing, Michael Burgess, Matthew Burgess, their mother Lesley Burgess, Kevin Nguyen, and Darren Wong and two companies owned and controlled several entities that had accounts registered at FTX.com and FTX US.
The former employees have been accused of fraudulently withdrawing assets belonging to the exchange in the ninety days leading to FTX’s bankruptcy declaration.
Former FTX Employees Allegedly Benefitted From Insider Information
Before the filing of the Chapter 11 cases, Micheal Burgess, Kevin Nguyen, and Darren Wong worked in senior-level roles at FTX Group companies, including now-bankrupt Alameda Research and FTX Digital Holdings in Singapore.
Despite leaving their positions in January 2022, they continued trading through their individual and affiliated accounts, averaging between $100 and $400 million monthly between January and November 2022, with the FTX Group being the primary source of trading funds.
During the ninety days—also known as the Preference Period— before the November 11, 2022 bankruptcy filing, the former employees benefited from “withdrawals that constitute preferential transfers and are avoidable under the bankruptcy code.”
“The defendants raced to withdraw assets from their various individual and corporate accounts on the FTX.com and FTX US exchanges,” the filing said. It added that they leveraged their “connections to FTX Group personnel to ensure they would be prioritized over other customers.”
This happened even as the backlog of pending customer withdrawal requests grew. FTX users waited longer for withdrawal requests to be fulfilled, many remaining unsettled before the crypto exchange filed for bankruptcy.
Citing messages on Slack, the filing also alleges that Matthew Burgess employed other FTX employees to work on pending withdrawal requests from one of his FTX US exchange accounts. The transfers from accounts owned by Michael Burgess, Matthew Burgess, their mother Lesley Burgess, Kevin Nguyen, and Darren Wong were completed just hours before FTX halted withdrawals on Nov. 8, 2022.
More than $123 million (based on August 31, 2023 pricing) was withdrawn on or after November 7, 2022, with $73 million transferred to Michael Burgess.
FTX To Recover Fund Paid To Genesis Exchange and Others.
FTX’s lawsuit against Salameda is an ongoing attempt by the defunct exchange to “recover and avoid” payments from related parties.
The bankrupt estate has targeted former CEO Bankman-Fried and, in May, filed a motion to take back the $4 billion loan repayment made to Genesis Capital from Alameda Research in the weeks leading to FTX’s bankruptcy.
It has also declared its intent to recover more than $71 million after a court filing in July revealed that FTX’s philanthropic arm and other life science entities had been receiving funds from Bankman-Fried for personal use. The company has recovered more than $5 billion in different assets and owes customers more than $8 billion, according to a June report.
