FTX Founder Parents Contest Clawback Suit, Reject Claims of Insider Involvement

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In a recent filing on Monday before a U.S. bankruptcy judge, Joseph Bankman and Barbara Fried, parents of FTX founder Sam Bankman-Fried, have moved to dismiss a lawsuit brought by FTX, rejecting claims that they played a role in the company’s downfall. Meanwhile, Mr.Bankman-Fried parents are seeking to reclaim funds and gifts allegedly received from their son and his crypto exchange.

Motion to Dismiss

On Monday in Delaware bankruptcy court, Bankman and Fried strongly denied being FTX insiders capable of influencing the company’s financial decisions. The motion to dismiss argues that FTX’s lawsuit lacks evidence demonstrating the parents’ control over the company or awareness of the circumstances leading to its financial downfall.

According to the filing, while Bankman occasionally provided legal advice, including tax guidance on the $10 million gift, he held no formal position within FTX and lacked the authority to direct payments. 

Additionally, the parents clarified that the luxury property in the Bahamas, a subject of contention in the lawsuit, served as shared FTX accommodation, not their exclusive residence.

Political Donations and Property Disputes

FTX alleges that Bankman-Fried’s parents received a $10 million cash gift, a $16.4 million luxury property in the Bahamas, and orchestrated donations totaling $5.5 million to Stanford University and a minimum of $10 million to Fried’s political action committee. FTX asserts that these transactions occurred while the exchange was facing financial distress.

Further Barbara Fried denies any involvement in directing political contributions, emphasizing her lack of knowledge regarding the source and structure of FTX’s political donations.

The dispute over the Bahamas property adds another layer to the legal wrangling, with Bankman and Fried asserting it was a shared FTX property, not their primary residence, and was also utilized by FTX employees.

Backdrop of FTX’s Bankruptcy

FTX, once a prominent cryptocurrency exchange, filed for bankruptcy in November 2022, following the conviction of founder Sam Bankman-Fried on fraud and conspiracy charges.

Despite the legal challenges, FTX has actively pursued clawback efforts against former insiders and partners to recover assets for defrauded customers. The exchange reports successfully recovering over $7 billion since initiating bankruptcy proceedings. 

FTX has yet to respond to requests for comments on the recent motion to dismiss filed by Bankman and Fried.