FTX has filed a lawsuit against K5 Global, an investment firm co-owned by Michael Kives, a former aide to Hilary Clinton. The lawsuit accuses Kives and his associates of fraudulently receiving $700 million from FTX through shell companies and fake transactions.
The lawsuit, filed on June 22 in the Delaware Bankruptcy Court, accuses Kives and his associates of fraudulently receiving $700 million from FTX through shell companies and fake transactions.
How K5 Global allegedly scammed FTX
According to the filing, FTX’s founder Sam Bankman-Fried met Kives at a networking event in 2022 and was impressed by his reputation and connections in the entertainment and political spheres.
Kives claimed to be an investor and advisor to prominent companies such as Spotify, Airbnb, Snapchat, and Uber. Bankman-Fried trusted Kives and his associates to help FTX raise funds and expand its business.
However, the lawsuit alleges that Kives and his associates used shell companies and fake invoices to siphon off $700 million from FTX through various deals.
For example, the lawsuit claims that Kives and Baum used SGN Albany Capital and Mount Olympus Capital to receive $214 million from FTX in order to buy a minority stake in Kendall Jenner’s 818 Tequila brand.
According to SEC filings, the tequila company’s assets were only worth $2.94 million at the time.
The lawsuit also claims that Kives and Baum used SGN Albany Capital to receive $100 million from FTX to invest in Embed, a $1 billion stock platform.
However, according to the lawsuit, Embed’s valuation was based on false projections and inflated metrics.
The lawsuit further claims that Kives and Baum used SGN Albany Capital to receive $50 million from FTX to pay Genesis Global Capital. This crypto lending company was insolvent at the time.
The payment was allegedly made without any due diligence or documentation.
According to the lawsuit, Bankman-Fried disregarded the warnings of FTX employees who suspected that Kives and his associates were scamming the company.
Bankman-Fried continued to rely on Kives and his associates to secure rescue financing in the days leading up to FTX’s bankruptcy in November 2022.
FTX seeks justice and recovery
The lawsuit argues that the transactions between FTX and the defendants were avoidable under bankruptcy or other laws in the US.
The lawsuit requests that the court declare the transactions void or voidable and order the defendants to return FTX’s funds.
It also asks the court to award FTX over $700 million in compensatory damages, over $100 million in punitive damages, pre-and post-judgment interest, attorneys’ fees, costs, and other relief.
Furthermore, FTX has filed lawsuits against other parties involved in its pre-bankruptcy deals, such as Embed and Genesis Global Capital.
FTX reached a settlement with the Metropolitan Museum of Art on Wednesday, in which the museum agreed to refund $550 million in donations from FTX entities in 2022.
FTX’s new management has recovered more than $7 billion in assets that can be used to repay customers whose funds were frozen when the crypto exchange collapsed.
The exchange is also working on relaunching its operations under a new name and brand.
As reported by The Block, FTX’s lawsuit against K5 Global and its associates is one of the largest legal actions in the crypto industry. The case could shed light on the shady practices and risks involved in the crypto space.
