A group of investors filed a class action lawsuit against the collapsed crypto exchange FTX, its founder Sam Bankman-Fried, as well as several celebrities, alleging they were part of a “fraudulent scheme” designed “to take advantage of unsophisticated investors from across the country.”
The lawsuit, brought by prominent law firm Boies Schiller Flexner and the Moskowitz Law Firm in Florida Southern District Court, claims the defendants “actively participated” in the “offer and sale of unregistered securities in the form of yield-bearing accounts.”
Describing FTX and its affiliated entities a true “house of cards” and “a Ponzi scheme” where the parties involved “shuffled customer funds between their opaque affiliated entities,” the lawsuit also alleges FTX used new investor funds obtained through investments in the yield-bearing accounts and loans to pay interest to the old ones and to attempt to maintain the appearance of liquidity.
gm: FTX Meltdown 101: What the Hell Happened and What Comes Next
In less than a week, one of the largest and most trusted crypto exchanges went up in flames, along with its crypto celebrity founder and CEO Sam Bankman-Fried. Dan Roberts, Stacy Elliott, and Kate Irwin from the gm podcast walk you through exactly how it happened, what it means for you, their own takes on the most interesting subplots, and what we can learn from it all. Plus: We review some comments SBF and CZ made on this podcast that look remarkable in hindsight. Watch and make sure to subscribe to the gm podcast on Apple or Spotify.
In the court fling seen by Decrypt, plaintiffs claim that as a result of FTX fraudulent activities, “American consumers collectively sustained over $11 billion in damages.”
Celebrities caught in FTX lawsuit
The lawsuit also pursues claims against a host of celebrities and athletes for their roles in promoting FTX activities as brand ambassadors on social media platforms and participating in marketing campaigns.
Some high-profile individuals who allegedly helped promote FTX include National Football League quarterback Tom Brady, supermodel Gisele Bündchen, tennis star Naomi Osaka, former basketball star Shaquille O'Neal, Shark Tank personality Kevin O’Leary, and even the NBA franchise Golden State Warriors.
While comedian Larry David did appear in a high-profile Super Bowl television ad for FTX, it's worth noting that the pretext of the advertisement is that David prematurely disapproves of innovations like the wheel, coffee, democracy, electricity, and the iPod. When pitched FTX as the punch line, he replies, "Eh. I don't think so, and I'm never wrong about this stuff. Never."
It is still unclear at press time how liable these individuals are for their role in the fall of FTX.
FTX Spent Hundreds of Millions of Dollars on Sports Marketing on Road to Bankruptcy
Crypto derivatives exchange FTX launched in 2019 and soared to a $32 billion valuation in just three years—now the rocket ride is ending in Chapter 11 bankruptcy. Along the way, the company—flush with trading fee revenue from the mainstream crypto boom during the pandemic—spent big on sports marketing deals to raise customer awareness. In the second half of 2021 alone, FTX and/or FTX US signed deals with the NBA's Miami Heat (stadium naming rights), Major League Baseball (as the official crypto...
Per the lawsuit, FTX's business "was based upon false representations and deceptive conduct. Although many incriminating FTX emails and texts have already been destroyed, we located them and they evidence how FTX’s fraudulent scheme was designed to take advantage of unsophisticated investors from across the country, who utilize mobile apps to make their investments.”
The class action lawsuit comes less than a week after FTX and its affiliated entities filed for bankruptcy protection, with CEO Bankman-Fred stepping down.
FTX is also facing scrutiny from U.S. authorities amid reports that at least $4 billion, with part of that amount in customer assets, were used to prop up Bankman-Fried’s trading company Alameda Research.
