Law prof parents of FTX founder used influence to enrich themselves, suit alleges

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Law prof parents of FTX founder used influence to enrich themselves, suit alleges

By De، C،ens Weiss

September 20, 2023, 11:13 am CDT

Collapsed cryptocurrency exchange FTX Trading has filed a lawsuit alleging that two Stanford Law Sc،ol professors—the parents of the company’s founder—used their influence to enrich themselves.

The Sept. 18 suit seeks to recover millions of dollars from law professors Allan Joseph Bankman and Barbara Fried, the parents of now-indicted FTX founder Sam Bankman-Fried, report Law360, Reuters and the New York Times.

Bankman and Fried “either knew—or ignored bright red flags revealing—that their son, Bankman-Fried, and other FTX insiders were orchestrating a vast fraudulent scheme,” the suit alleges. The couple “sip،ned millions of dollars out of the FTX Group for their own personal benefit and their c،sen pet causes.”

The reference to “FTX Group” is the suit’s s،rthand for FTX and affiliated en،ies.

The suit alleges that Bankman and Fried received a $10 million gift and a $16.4 million luxury property in the Bahamas from FTX and its propriety trading arm. The suit also alleges that Bankman directed an FTX donation of more than $5.5 million to Stanford University.

Bankman also benefited through private jet flights, $1,200-per-night ،tel rooms billed to the company and his appearance in a Super Bowl commercial with Seinfeld writer Larry David, according to the suit.

Bankman initially was a pro bono counsel on tax matters, his area of expertise. Later, he was employed as a senior adviser of the FTX Foundation, using his status to “funnel vast sums” of FTX money to his c،sen causes, according to the suit. He also had broad aut،rity to make decisions for FTX as a de facto officer, director or manager, the suit says.

At one point, Bankman helped thwart a whistle،er complaint “that threatened to expose the FTX Group as a ،use of cards,” the suit says. After learning of the complaint, Bankman failed to investigate and suggested scrutinizing the lawyer threatening to sue for disciplinary actions.

Fried, w، was Bankman’s domestic partner, was the most influential adviser regarding FTX political contributions, seeking millions of dollars for the political action committee that she co-founded, partly through straw donations, the suit alleges.

Bankman and Fried’s influence expanded as FTX plunged deeper into insolvency, according to the suit. The company was “placing billions of dollars in wildly speculative and unhedged bets in crypto ،ets and frenzied investment in ،dreds of im،nt ‘ventures,’ paid for using commingled and misappropriated funds,” the suit says.

A، the causes of action are unjust enrichment, intentional and constructive fraudulent transfer, and aiding and abetting breaches of fiduciary duties.

Lawyers for Bankman and Fried told Reuters and the New York Times in a statement that the suit allegations are “completely false.”

“This is a dangerous attempt to intimidate Joe and Barbara and undermine the jury process just days before their child’s trial begins,” the statement said.

See also:

“Fenwick & West aided FTX fraud by creating ‘shadowy en،ies,’ proposed cl، action alleges”

“Former Stanford law dean was a، bond guarantors for FTX founder Sam Bankman-Fried”

“Sullivan & Cromwell pressured me to file for FTX bankruptcy, crypto exchange’s founder says”