A deep dive into FTX’s lawsuit against Sam Bankman-Fried’s parents

The debtors-in-possession of the FTX estate have filed a lawsuit against Sam Bankman-Fried’s parents, Joseph Bankman and Barbara Fried, accusing them of a host of fraudulent behavior at the expense of the firm — sometimes even taking on leadership roles above their son.

With this lawsuit, FTX debtors aim to recover funds lost due to fraudulent transfers, breaches of fiduciary duty, and unjust enrichment for the couple’s roles with the now-defunct crypto exchange.

Sam Bankman-Fried, the former CEO of FTX and largest shareholder of Alameda Research, has previously said that his parents “weren’t involved in any of the relevant parts.”

Debtors-in-possession contend that’s a lie. Bankman himself may have given them the ammunition to go after the pair as early as 2018, describing Alameda Research as a “family business.”

Joseph Bankman allegedly held high-level role at FTX

The suit alleges that Bankman-Fried’s father, a tenured professor at Stanford, extensively involved himself in both the business and legal affairs of FTX and its associated entities. It claims that beyond his official roles, he also served “as a de facto officer, director, and/or manager” since he was basically “the only adult” in the room.

In this role, Bankman was able to personally enrich himself; allegedly, in the form of “millions of dollars in unearned ‘gifts’ and real property.” Bankman flew on private jets, the lawsuit claims, expensed “$1,200 per night hotel stays to the FTX Group,” and wiggled his way into appearing in a Super Bowl commercial with his celebrity crush Larry David.

These efforts didn’t just benefit himself but also those close to him, FTX debtors-in-possession have said. One example provided involves giving a former student of his at Stanford “a free trip to France,” including flight tickets and access to the Formula 1 Grand Prix, worth “several thousand dollars.”

Bankman was involved in suggesting various firms that could help FTX and Alameda Research, introducing them to their accounting firm and their law firm.

In January 2021, Bankman decided to document his relationship with these entities, via an agreement where he was the signatory for himself and for the FTX entities.

Specifically, the complaint alleges that “[h]e entered into an agreement to provide legal services to FTX Trading, Alameda Ltd., and WRS, and each of their subsidiaries and affiliates, regarding general corporate and tax matters on a pro bono basis. Bankman-Fried signed the agreement on behalf of the entities.”

Bankman pressured SBF into $1M salary with a classic “I’m telling mom”

Eventually, Bankman would take a leave of absence from Stanford, and told an FTX US employee, “I am no longer getting paid by Stanford, cuz I’m on leave. So you should have me on salary, starting Dec. 1.”

In December 2021, Bankman entered into an employment agreement with FTX US, where he would serve as “Senior Adviser to the FTX Foundation.” Compensation for this role was a problem, with Bankman reaching out to his son to demand more money.

Apparently, an initial $200,000 a year plus bonuses just wasn’t enough for Bankman. He told FTX’s head of administration that he was “supposed to be getting $1M/yr, starting in December. So that would be a bit more than $80,000 a month, gross…”

Bankman quickly looped his son into the dispute, emailing Bankman-Fried, “Gee, Sam I don’t know what to say here. This is the first have heard of the 200K a year salary! Putting Barbara on this.”

Joseph Bankman just inspired a Protos fashion line. pic.twitter.com/VTgiSTA6jD

— Protos (@Protos) September 19, 2023

When in doubt, tell mom.

Read more: FTX firm had agreement with Bitfinex for ‘fiat integration’

“Putting Barbara on this” apparently led to quick results. Within two weeks, Bankman and Fried were gifted $10 million in funds originating from Alameda. Within three months, Bankman-Fried allowed for his parents to be gifted a $16.4 million property in the Bahamas paid for with funds ultimately provided by “an FTX Trading bank account with commingled customer funds.”

Bankman and Fried also expensed over $90,000 in furniture, landscaping, and management for their new home to FTX Trading. Bankman further “received an option to purchase 4.5 million shares of WRS and 1,008,000 shares of FTX Trading in November 2021.”

They appeared to have prepared for this. Five months before the purchase, both Bankman and Fried paid $15,000 to obtain permanent residency in the Bahamas — “ultimately paid for by FTX Trading.”

Property had been on Bankman’s mind even before they got this house. In 2021, after FTX’s counsel tried to setup a meeting with their law firm to discuss “how assets including primary residence can be structured to be bankruptcy-remote,” Bankman noted to Friedberg and FTX counsel that “t would be great, all else equal, if we could, have the founders put money into property in the Bahamas,” and even included to a link to a website describing trusts in the Bahamas.

After discussing this with other lawyers, he said that this was “something we might use when we buy property in the Bahamas.”

“Not a starfucker, but…”

Outside of these immediate financial benefits, he was also able to achieve other burning desires. At one point, Bankman felt strongly that he should make a cameo appearance in an FTX ad for the Super Bowl because he was a big Larry David fan.

“OK, I’m not a starfucker and don’t really care about meeting, say, Tom Brady. But Larry David…” Bankman got his wish, appearing in the ad as a lawyer.

(Ironically, Tom Brady was himself royally ‘starfucked‘ by FTX when the firm collapsed.)

Read more: SBF told to prep his case in jail while another FTX exec pleads guilty

FTX alleges nepotism at its finest

The lawsuit alleges that Bankman’s far-reaching influence at FTX extended to hiring recommendations, even pushing for board and advisory positions for his “friend of the family,” and vetting potential CFO candidates.

“In his leadership role, Bankman discussed with Friedberg the relationship between FTX Trading and Alameda under U.S. Securities and Exchange Commission regulations,” the lawsuit read, “developed a charitable giving strategy for the FTX Group, advocated for the FTX Group to market itself as a leader in customer satisfaction in response to regulatory scrutiny about consumer fraud, and helped steer the incorporation of FTX Trading.”

This is beyond the previously discussed role in connecting FTX with its accounting and legal firms.

Furthermore, internally he was explicitly listed as a member of the management, “n a September 2022 internal document intended ‘to help illustrate FTX US’s structure (organizational, personnel, workflows, etc.),” Bankman was listed as part of the ‘Management Team,” alongside only Bankman-Fried, Friedberg, Wang, FTX US Head of Policy, FTX US General Counsel, and the CEO of FTX US Derivatives.”

Bankman was allegedly even involved in negotiating the repurchase of FTX shares from Binance using funds from Alameda Research.

Documents reveal Alameda Research bought FTX stake from Binance

Read more: Alameda-funded bank Farmington State gets cease and desist from Fed

Furthermore, he was allegedly specifically involved in loans to Nishad Singh totaling $478 million. Singh has since pled guilty to charges related to FTX including conspiracy to commit money laundering, conspiracy to commit wire fraud, and conspiracy to violate federal campaign finance laws.

Bankman also appeared to have detailed knowledge of financial transactions between FTX entities, noting that “we are always trading off tax issues among individuals and entities.” He even discussed a specific example about gift taxes where “[w]e considered having funds made available by Sam through Arabella, through our own 501(c)(3), through a foreign entity with a 501(c)(3)-like charter, and through Alameda as a public benefit corporation.”

In one specific example, “Bankman instructed FTX US Head of Administration in July 2022 to make a $50,000 donation from the FTX Foundation, adding, ‘if that is difficult, we can just send it from FTX.us.’”

Bankman also took opportunities to get other family members involved, such as his sister — Bankman-Fried’s aunt. Bankman hired his sister at a salary of $14,000 a month to spearhead one of his pet projects, the “FTX Million Dollar Hackathon and Crypto Summit.” Held at the Miami Heat Arena (named FTX Arena at the time due to a $135 million sponsorship), the event flopped. Bankman authorized his sister “to spend whaetver it takes,” the lawsuit claims, with a total cost of $2.3 million. The hackathon was attended by just 1,200 people — in an arena that seats more than 19,000.

A cool $5.5M in donations to Stanford

The complaint further alleges that Bankman specifically took steps to direct donations from FTX to his and his wife’s employer, Stanford University. It alleges that at one point he tried to direct a $500,000 donation to Stanford from Paper Bird, an entity that didn’t have a bank account. He thought it was important for this entity to be used for the transaction “because it can use the deduction.”

There were alternatives, for example, “[w]e can have another entity loan Paperbird [sic] money but that requires some paperwork.” Eventually this was all sorted out, and the Paper Bird account received two deposits from an FTX trading account, worth $1 million and $500,000. That same day, the Paper Bird bank account initiated a wire transfer of $500,000 to Stanford University, the lawsuit claims.

There were other larger donations as well, including a $4 million donation to Stanford related to a fund for pandemic preparedness, and he noted that it was “pretty much a no-brainer.” This gift would eventually be paid in bitcoin from Alameda Research’s FTX account.

In March 2022, it was proposed that FTX give $1.5 million from the FTX Foundation to Stanford College. The initial $500,000 for this donation was transferred from an Alameda Research bank account to Stanford. A second $500,000 related to this was transferred weeks before the collapse from a FTX US bank account to Stanford.

Another donation was much smaller in size, with Bankman insisting that they “definitely want to contribute the 10k” so FTX can sponsor a blockchain conference hosted at Stanford. This donation illustrated just how interchangeable these entities seemed to Bankman, as he noted that “10K is so little it doesn’t really matter, so if we think that having [FTX US] is easier or safer for some reason, we should do that.”

These donations allegedly improved the family’s own perception, with these gifts being categorized as “directed by the Bankman-Fried family,” at least according to one Stanford University employee quoted in the lawsuit.

On Tuesday, Stanford said that it planned to give back all of the $5.5 million in donations made by FTX and the Bankman-Fried family.

SBF a “prince” for going along with mom’s donation advice

Fried described herself as her son’s “partner in crime of the noncriminal sort,” the lawsuit quotes. Her son allegedly didn’t hesitate to sing her praises to his team: “Bankman-Fried made known to several FTX Group employees his intent to rely on his mother’s direction regarding political contributions—contribution recipients, amounts, and disclosure requirements—and encouraged them to likewise follow Fried’s advice.”

The complaint alleges that this trust went so far that Fried was able to “unilaterally” commit funds to Mind the Gap, a political action committee she led, on Bankman-Fried’s behalf.

Though sometimes there did seem to be some confusion about where the funds were coming from, with her noting in one email, “I don’t know exactly what interconnected entity he sent the money from…but the business is real and revenue-generating.”

In another case, she raised some concerns about how contributions to Mind the Gap could look, and suggested that instead of donations coming from Bankman-Fried, they could instead come from Singh, specifically, “Since this is going to our 527, and hence is disclosed, I’m assuming that Nishad would be the better person to have his name on it.”

“We’d have a slight preference for that on our end,” Fried continued, “now that my connection to Sam is publicly known, because we don’t want to create the impression that funding MTG is a family affair, as opposed to a collective effort by many people (including some mystery guy Nishad Singh :))”

FTX gets approval to liquidate its crypto — here’s the plan

Read more: Two law firms made over $200M from FTX, Celsius, and other crypto busts

Fried was always concerned about how political spending can be perceived and made sure to mention in an email to Bankman-Fried that they “need to start thinking through the disclosure issue now to make sure we protect [Bankman-Fried] and FTX. Plays at the state level especially are going to provoke accusations of carpet-bagging.”

In one email, she even suggested that “Noah will only give in a non-disclosed form, and I would strongly urge you to do the same– or substitute someone else’s name. (I’m skeptical how long that will help. One of these days soon, some reporter is going to think to look more closely at FEC reports, do a search for donations by company, and just reframe this as the FTX juggernaut rather than the SBF juggernaut, or even worse suggest you are using Nishad/Caroline as fronts.). Nondisclosed form would mean to the 501(c)(4).”

To which Bankman-Fried responded, “Awesome! Yup happy to split the $15m with him wherever it’s best.” Fried replied, “[y]ou are a prince.”

In another she warned, “I would counsel strongly against giving in a disclosed form under your own name, both for MTG’s sake and yours,” and continued, “[y]ou could get Nishad or Caroline to contribute to the PAC some of the total amount you are willing to give, but that has its own costs and risks.”

Fried resigned from her role at Mind the Gap after the arrest of her son.

Legal backflips for $10 million gift to the parents

The $10 million gift from FTX funds that Bankman-Fried gave to his parents was allegedly in the works as early as October 2021. Fried emailed her son at the time, “You wrote down $14 million for the cash. That would be right if you were giving dad $10 million in cash, but I thought you were giving him only $7.2 million in cash plus the $2.8 mill in the account in his name.”

In early 2022, Bankman proposed that the “easiest way” to gift the funds would be to “add 10M to the 250M loan Sam has from Alameda. Then, Sam gifts the money. No current tax on either transaction.”

“Eventually, Sam recognizes income when the loan is paid off or cancelled, at the dividend/capital gain rate,” Bankman continued, “but that can happen in a year when he donates a lot, offsetting some or all of the tax.”

This transaction was eventually structured as a loan, and Bankman-Fried suggested that $10 million could be transferred to Bankman’s FTX US account, and he could then withdraw. Allegedly, his father responded, “perfect!” $10 million was transferred from one of Alameda Research’s FTX US accounts to one of Bankman-Fried’s accounts before quickly being transferred to Bankman’s account.

$6.75 million would be withdrawn to three separate bank accounts, with some of the remainder used to purchase over 9,000 Solana tokens.

After Fried and Bankman received the $10 million, they sent an email to their son in which they lovingly noted in writing that, “We are so touched by this gift. Mom is announcing retirement, which she would not have done otherwise.”

Bankman was in it ’til the very end

FTX alleges that given Bankman’s extensive background in tax law and his deeply entrenched position in the firm that afforded him “unfettered access to FTX’s financial and corporate structure,” he was “well-equipped to see the true nature of FTX’s business.”

Instead, Bankman ignored red flags. In one instance, he even encouraged and applauded an attempt to silence a whistleblower.

Bankman remained deeply involved until the very end. On November 7, 2022, he flew to the Bahamas and “joined the scramble to find sources of capital to save FTX.” Bankman was included in the small group of execs invited to a meeting with Binance, scheduled for two days before FTX filed for chapter 11 bankruptcy. The day prior, he was apparently scheduled to meet with the prime minister of the Bahamas.

As Protos has previously reported, during the time FTX was looking for this emergency funding, Bankman reached out to Anthony Scaramucci to inform him of the “asset-liability mismatch.”

Joseph Bankman warned Scaramucci about FTX

Read more: FTX US customers may not get all funds back in chapter 11 plan

What happens next?

The lawsuit specifically claims that Bankman breached fiduciary duties and that both Fried and Bankman aided and abetted breaches of fiduciary duties, received unjust enrichment, and participated in fraudulent transfers.

The debtors in possession seek the compensation paid to Bankman, the property they received, as well as compensatory damages.

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