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FTX management is looking to recover more than $240 million from insiders and executives who benefited from FTX’s acquisition of clearing platform Embed in September.
It was reported yesterday that a lawsuit was filed against former FTX CEO Sam Bankman-Fried and other leading FTX insiders on May 17 regarding the acquisition of Embed, which they allege was conducted without due diligence.
However, on the same day, a separate recovery suit was filed against Embed CEO Michael Giles and its shareholders, accusing FTX of paying a “grossly inflated” price of $220 million for the stock trading platform.
According to the documents, Embed’s CTO Lawrence Beal was stunned that FTX paid the company so much after one brief meeting with Giles. In an email with another senior Embed employee, Beal described the FTX due diligence process with a cowboy emoji.
“I have a feeling that they [ковбойские смайлики] there”.
As part of the purchase, FTX also paid Embed employees a total of $70 million in retention bonuses. The bulk of this amount – $55 million – was paid to Giles, who later became concerned about how he would justify the amount to other employees.
Between the day Giles signed the acquisition on June 10, 2022, and the completion of the acquisition on September 30, 2022, he was paid a staggering $490,000 every day, assuming he worked seven days a week. He also received an additional $103 million after the deal closed thanks to being Embed’s largest shareholder.
Back at you @Brett_FTX @SBF_FTX @ramnikarora and team. Excited for @Embedded to join @FTX_Official https://t.co/LttYxEFR7L
— Michael Giles (@Harland) June 21, 2022
This amount is in stark contrast to Giles’ usual salary of $12,500 a month as CEO of Embed.
Despite holding agreements with a number of Embed employees, Giles was the only one to receive his full retained bonus on closing day. The rest of the employees were required to stay at Embed for two years if they wanted to receive their full bonuses.
As a result of these disproportionate payouts to Embed insiders, FTX will now seek to recover $236.8 million from Giles and Embed executives, as well as an additional $6.9 million from Embed’s smaller shareholders.
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In addition, lawyers accused FTX insiders of “taking advantage of FTX Group’s lack of control and record keeping to perpetrate massive fraud” by using improper means to facilitate the purchase of Embed, while fully aware that the company was insolvent at the completion of the transaction.
FTX filed for Chapter 11 bankruptcy protection on November 11, 2022. The firm’s new management, led by bankruptcy attorney John Ray III, has focused on recovering funds to pay clients and creditors. More recently, FTX lawyers have been considering a possible reboot of the exchange.
Cointelegraph contacted Embed CEO Michael Giles for a comment, but received no response as of press time.